Ailing Korea Development Corp. seeks workout

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Ailing Korea Development Corp. seeks workout

Fear is spreading among the struggling construction industry as another firm, squeezed by liquidity problems, requested a workout from its creditor yesterday.

Korea Development Corp., the construction unit of Daelim Industries, became the latest casualty of an industry that is showing scant signs of recovery by joining the list of construction firms that have either requested, or are currently undergoing, debt-restructuring programs.

The company, which ranks 38th in the domestic construction industry, issued its request just two weeks after the 40th ranked company, Limkwang Engineering and Construction, which was established 84 years ago, filed for court receivership.

As of yesterday, 25 of the nation’s top 100 construction companies have fallen into similar straits. And a recent survey shows that more are fretting about suffering a similar fate given the dire condition of the industry.

Korea Development Corp. asked earlier that its creditor either scale back the interest rate on its loans or extend the time frame for repayment, but the two parties failed to reach an agreement.

Such an environment was reflected in the industry’s business sentiment index, which stood at 66 last month. This represents a fractional incline of 0.6 points from October when it posted the lowest reading in over a year, according to the Construction Economy Research Institute of Korea (Cerik).

Across the sector, mid-size companies offered the bleakest outlook of 64, down four points on-month. A reading below 100 indicates that the majority of companies are pessimistic about the industry’s short-term prospects.

Cerik’s Lee Hong-il said a shortage of public construction orders weighed on sentiment, but that the index may pick up this month as these typically rise at the end of the year.

“But it will likely remain below 100 as the industry is expected to stay recessed for some time,” he added. The Cerik report has the index rising to 70 points this month.

The construction industry has been cooling off ever since the government tightened regulations to keep a lid on spiraling apartment prices in the mid-2000s. It experienced another hammering when the global economy crumbled following the bankruptcy of Lehman Brothers in 2008. In recent years, the government has applied various tonics to try and breathe life back into the choking industry, to little avail.

By Lee Ho-jeong []

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