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HDC to suffer downgrade risks in credit, ESG and brand power

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Former HDC Hyundai Development Company CEO Chung Mong-gyu
Former HDC Hyundai Development Company CEO Chung Mong-gyu
By Lee Kyung-min

HDC Hyundai Development Company, a scandal-tainted construction affiliate of HDC Group, is facing growing downgrade risks in its credit and environmental, social and corporate governance (ESG) ratings and a rapid overall deterioration in brand value, according to Korea's three credit rating agencies.

The collective opinion is the latest in the fallout after seven casualties occurred at an apartment complex under construction in Gwangju, a fatal collapse that the investigative authorities concluded had resulted from the firm's poor supervision of safety standards.

Corporate profit, they say, will be significantly dented by a sharp deterioration in brand value and subsequent dive in advance orders of apartment construction, compounded further by shaky financial soundness due to lingering penalty risks brought on by questionable safety management protocols.

The three ― Korea Ratings, NICE Investors Service and Korea Investors Service ― are considering downgrading the credit rating of the Hyundai affiliate.

NICE Investors Service analyst Lee Eun-mee said the rollover of securities issued by the firm in the amount of over 2.85 trillion won ($2.36 billion) remains uncertain, despite the firm's cashable asset of 1.9 trillion won. "The collapse of part of the building continues to send shock waves to the market, with investors jittery over how far-reaching the consequences could be," Lee said.

The brand value of IPARK, the name of apartment complexes built by the HDC affiliate, tanked over the past two months, as borne out by a survey courtesy of Brand Reputation Index. The survey showed IPARK came in last on the list of the country's 24 apartment brands, as of this month, down from the fourth place two months earlier.

"The survey is an indication of grim business prospects in the months to come, since the collapse occurred at an apartment complex under construction, not at ones already built," according to Korea Ratings researcher Sung Tae-kyung.

Sustinvest, an ESG analytics and research data provider, said the firm's ESG rating is expected to be lowered further down to C, the fifth place on a scale of seven, from B, the fourth place.

"The firm's brand value is substantially damaged, and exposure to government punitive measures has elevated. The chances of its long-term ESG risks subsiding therefore is not likely," it added.

Lee Kyung-min


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