Builders will face dicey period in a few weeks

More construction companies could collapse in May and June, when most of their project finance loans come due, according to data released yesterday.

A total of 25 trillion won ($22.9 billion) in project finance loans are due to expire this year, of which more than half, or 13.8 trillion won, fall due in the second quarter.

The 25 trillion won in project finance loans includes 15 trillion won from banks and 10 trillion won from nonbanking firms. The amount that matures this year accounts for 38 percent of total outstanding project finance loans of 66 trillion won.

Several midsize builders have already filed for court receivership this year, including World Construction, Chin Hung International, LIG Engineering & Construction, Sambu Construction and Dongyang Engineering & Construction.

According to the Construction Association of Korea, 28 of the top 100 construction firms are now under debt workout programs or court receivership.

Given the situation, more builders could go bankrupt in the months ahead unless they pay back or extend their project finance loans.

Adding to their problems, banks are becoming stricter in extending loans because of the growing amount of nonperforming loans in the financial sector, particularly among savings banks that have been big lenders to construction companies.

“This is no time to try to save others since everyone is struggling to escape from the jaws of death,” said an official at a local savings bank. “There is now a war of shifting risks between construction firms and savings banks.”

“If the financial sector demands the repayment of project finance loans or refuses to extend the maturity of the loans, then most construction firms, except for those affiliated with large groups, will collapse,” Kim Dong-soo, an official at the Korea Housing Association, said.

Experts say there is a problem in the structure of project finance loans. “Project finance loans should be based on the feasibility of building projects, but banks only look at the size of builders,” said an analyst.

By Jung Jae-yoon [jyj222@joongang.co.kr]