Woes just keep on building

Korea’s construction industry has received more bad news with the announcement by the Financial Supervisory Service that half of 40 companies that need to be placed under restructuring are construction companies.

After examining credit risk for 584 companies, the FSS on Wednesday identified companies in need of restructuring. Among them, 27 were rated grade C, meaning they should do a voluntary debt workout program with creditors, while the remaining 13 were given D, meaning they need to file for court receivership or improve their financial condition on their own.

The nation’s financial regulator said total debt of the 40 companies is about 4.5 trillion won ($3.9 billion).

Although, the FSS hasn’t named the companies, it said 14 builders earned grade C and six grade D.

“Shipbuilding, shipping and construction companies have restructured in the past, and the scale of reconstructing has not been reduced because of the ongoing slump in business,” Kim Jin-soo, the FSS director for the corporation bureau, said Wednesday.

Industry insiders were in a grim mood, but also relieved that most of the construction companies on the FSC reportedly were subcontractors for projects.

“If a major builder were included in the list, the impact would be immense since it would affect subcontractors and other related businesses,” said an official from the Construction Association of Korea. “However, if large builders have signed a joint liability guarantee for those companies on the list, it could be a problem.”

Local builders said the number of construction companies on the list is no surprise considering the long-running slump, but business should pick up in the near future.

The latest data from Fn Guide, an online financial information provider, estimates net profit of seven major construction companies listed on the stock market fell 45 percent year-on-year in the second quarter.

Fn Guide data placed the combined net profit of the seven companies, including No. 1 Hyundai Engineering & Construction, at 389.8 billion won in the April-June period, down 45.9 percent from a year ago. The financial information provider also estimated combined operating profit at 554 billion won, a 26.98 percent year-on-year decrease.

Fn Guide projected that only three of the seven builders (Hyundai E&C, Daewoo E&C and Hyundai Development Company) will collect more operating profit than last year.

“It’s a total emergency for construction firms, as business is difficult and the government is squeezing us with various investigations,” said one company official on condition of anonymity.

BY joo kyung-don [kjoo@joongang.co.kr]