Death bell tolls for debt-saddled Korean builders

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Death bell tolls for debt-saddled Korean builders


One chief executive at a construction company in North Gyeongsang is mired in debt and struggling to stay afloat in an industry that has shown scant signs of recovering from the 2008 economic downturn. And he is hardly alone.

“There is no hope,” said the CEO, who requested that his name not be used. “Some of the bosses of other construction companies have told me they are considering folding their businesses.”

Another high-ranking official at a construction lobby group said that roughly half of the construction firms in the country were struggling to repay the interest on their loans.

The industry has met with hard times in recent years. First it was crippled by government regulations aimed at cooling overheated apartment prices. Then it was hammered by the global economic downturn in late 2008.

While many industries recovered relatively quickly from the global credit crunch, construction firms have seen their situations deteriorate despite government efforts to help them out.

Today, the industry claims its very survival is in question as companies struggle with shrinking workloads, rising debts and the very real prospect of bankruptcy.

Construction projects, which were worth 120 trillion won ($106.5 billion) in 2008, fell to 103 trillion won last year. For full-year 2011, orders are expected to drop further, while those coming from the government look set to shrink by 7 percent.

Even the four-rivers restoration project, which civic groups claim shows the preferential treatment afforded to the construction industry, has failed to yield profits.

Due to the government’s stricter evaluation criteria for the project, many companies had to bid at a low cost. Some claimed they had suffered losses as a result.

“We suffered a loss because we had to increase our construction costs by 20 percent,” said on employee who worked on the Nakdong River project in South Gyeongsang. “We had to work even harder after the dirt that was dug up re-entered the river when the rains fell.”

As incomes fall, more companies are finding themselves knee deep in deficit. Almost 30 percent of construction firms in the country are in this position, up 6.9 percentage points from last year, according to the Financial Supervisory Service.

As a result, more companies are shutting up shop, with over 3,000 doing so each year since 2008, according to the Korea Specialty Contractors Association.

Dongin Standard, a Busan-based construction company with 70 employees, filed for bankruptcy in July, as orders melted away and its debt piled up. Samik Construction in South Chungcheong shared a similar fate.

“If this situation continues, companies will inevitably go bankrupt one after the other,” said an industry official. “The very foundation of the industry is being shaken right now.”

Meanwhile, government efforts to jumpstart the construction market have largely failed. There has been much talk about lifting several regulations that are constraining trade in the real-estate market, but nothing significant has materialized. One example was a recent call to scrap the ceiling on apartment presales.

“The construction market would be able to recover if the government lifted regulations to give companies some more breathing room,” said Shim Gyu-beom, an analyst at the Construction and Economy Research Institute of Korea.

By Park Il-han, Lee Ho-jeong []

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