Taeyoung Engineering & Construction's flag is seen outside its headquarters in Seoul, Dec. 27. Yonhap
Ailing builder Taeyoung Engineering & Construction applied for a debt-restructuring program Thursday to tide over a cash crunch, raising concerns over troubled peers in Korea.
Taeyoung E&C submitted the application to its main creditor, the state-run Korea Development Bank (KDB), after its board decided to request a debt workout, the company said in a regulatory filing.
The company also promised to take self-help measures, including the sale of affiliates and the contribution of major shareholders' private fortunes.
Taeyoung E&C, the 16th-largest builder in Korea in terms of construction capacity, has been suffering from a liquidity shortage due to real estate project financing (PF) loans amid a slumping property market.
The builder was supposed to repay 48 billion won ($37.2 million) in maturing PF loans to creditors on Thursday, with its outstanding PF loans coming to 3.2 trillion won.
By the end of this month, the construction company should pay back some 400 billion won in maturing PF loans, or loans based on future cash flows from real estate development projects.
As of end-September, Taeyoung E&C's debts were estimated at around 1.9 trillion won with its debt-equity ratio reaching 479 percent.
A debt workout refers to an agreement between a borrower in default and creditors to reschedule debts. Taeyoung E&C would go into a debt workout should 75 percent of its creditors agree to the program within two weeks.
A day earlier, a corporate restructuring act was reenacted, making it easier for insolvent companies to begin an out-of-court debt restructuring program.
The Corporate Restructuring Promotion Act was legislated in 2001 with a sunset provision after Korea was hit by the 1997-98 Asian financial crisis and had been extended five times before expiring last month.
Last year, Taeyoung E&C's sales stood at 2.6 trillion won, compared with 3.7 trillion won in 2018, with operating income tumbling to 91.5 billion won from 458 billion won.
Taeyoung E&C is the construction arm of Taeyoung Group, the country's 40th-biggest conglomerate that has major private TV broadcaster SBS under its wing.
Shares in Taeyoung E&C closed 3.74 percent down at 2,315 won on the Seoul bourse Thursday, underperforming the broad Korea Composite Stock Price Index's 1.6 percent gain. A day earlier, its shares tumbled nearly 20 percent amid rumors of a workout application.
Financial Services Commission Chairman Kim Joo-hyeon unveils government measures to address the fallout from the debt workout of Taeyoung Engineering & Construction during a press briefing at the government complex in Seoul, Dec. 28. Yonhap
Taeyoung E&C's workout application is feared to have repercussions on local construction companies with high exposure to real estate PF loans.
Local construction companies have been reeling from sluggish apartment sales stemming from high interest rates, combined with soaring prices of construction materials.
Industry watchers voiced concern that nearly 23 trillion won in PF loans could turn sour amid the slumping housing market next year. As of end-September, the country's total PF loans were estimated at 134.3 trillion won.
Delinquency rates of real estate PF loans have recently been rising due to the sagging housing market, stoking concerns over the financial soundness of highly exposed borrowers and the stability of the overall financial system.
After an emergency meeting, the government said it will do its best to protect buyers of apartments to be built by Taeyoung E&C and its contractors, vowing to prevent the PF loan problem from spilling over into the financial sector and the overall construction industry.
The presidential office also said the government will take all possible measures to manage risks and stabilize the market.
"We have been closely monitoring the situation in the construction market, including real estate, amid persistently high interest rates and the rise in construction costs, and continuously inspecting the status of major construction companies," a presidential official said on the customary condition of anonymity.
A day earlier, Finance Minister nominee Choi Sang-mok met with the central bank governor and two top financial regulators to address the issue.
Industry watchers said Taeyoung E&C's case could serve as a litmus test for the government's ability to bring financial or economic risks under control.
The central Bank of Korea (BOK) said Taeyoung E&C's workout application would have a limited impact on the country's financial market.
"Under the current situation, the move is expected to affect the financial market in a limited way, but (the BOK) would take necessary steps in cooperation with the government should its market impact escalate," Lee Jong-ryeol, a BOK deputy governor, told a press briefing. (Yonhap)