DS Networks, one of Korea's three major developers, is understood to be on the brink of court receivership. As the company's financial condition deteriorated, CEO Kim Young-cheol also resigned on 19th.
According to ChosunBiz reporting on 22nd, DS Networks is internally discussing whether to pursue court receivership or a workout. DS Networks has appointed a tax firm to review the matter and is presumed to choose between court receivership or reconciliation (composition) with its syndicate of creditors. The industry expects a decision within this week.
DS Networks officially denied this, but it has already analyzed scenarios for court receivership and a workout. Multiple sources familiar with DS Networks' situation said, "I understand the company is discussing the matter while collaborating with specialists."
A DS Networks official said, "We are not preparing for court receivership, and we are checking due to financial shortfalls."
DS Networks is one of the domestic "three major developers," ranking No. 1 in revenue among developers for three consecutive years from 2020 to 2022. It made aggressive investments during the real estate boom, but appears to have been unable to avoid a credit crunch amid the construction industry downturn.
The industry sees last year's swing to a loss as a fatal blow. Last year's revenue was 745 billion won, down 9.0% from a year earlier, and it recorded an operating loss of 160.3 billion won, turning to the red. Operating profit in 2023 was 45.6 billion won. A large impairment loss occurred during the process of disposing of assets. The point is that the deficit widened as it repaid borrowing fund.
DS Networks hurried the sale of major assets such as the Pyeongtaek Brain City mixed-use site and the Incheon North Port logistics center. It secured about 347 billion won in cash and repaid debt. Repayment of short-term borrowings fell from 240 billion won to 100.9 billion won in a year, and long-term borrowings decreased from 942.1 billion won to 262.3 billion won, but this alone appears to have been insufficient to improve finances. The liability ratio surged from 530% to 745% over the same period.
Meanwhile, sales also struggled. As of the end of last year, the Goyang Hyangdong Knowledge Industry Complex had a pre-sale rate of 43.47%. The Daegu Gamsang-dong mixed-use project's pre-sale rate was 51.15%, and the Seoul Gildong mixed-use project recorded a pre-sale rate of 82.16%.
The industry believes restructuring will be unavoidable even if DS Networks proceeds with reconciliation with its syndicate of creditors. In 2023, it already carried out a round of workforce restructuring and organizational downsizing. DS Networks notified all employees of a convocation for the afternoon of 23rd. A DS Networks official said, "It is a meeting to exchange views related to the business."
An official at a major developer said, "The development industry overall has not escaped the tight phase of project financing (PF)," adding, "DS Networks pursued aggressive sales during the boom through measures such as 'team-based bidding' and 'expanded incentives,' and I think the side effects are large in the economic downturn."