Chain Bankruptcies of Mid-Sized Construction Companies Accelerate the Crisis in the Construction Industry
The crisis in the construction industry is intensifying as mid-sized construction companies in South Korea, such as Sambo Construction and Angang Construction, are consecutively applying for corporate rehabilitation procedures (court receivership).
Sambo Construction and Angang Construction have filed for rehabilitation with the court, and Daewoo Shipbuilding & Marine Engineering Construction is also proceeding with a court receivership application, raising concerns about a wave of bankruptcies among mid-sized and small construction companies.
Angang Construction Applies for Court Receivership Amid Management Difficulties
In 24th of February, Angang Construction, which is ranked 116th in construction capacity assessment (2024), applied for court receivership at the Seoul Rehabilitation Court. Consequently, the court has issued a comprehensive ban order prohibiting all enforcement actions against rehabilitation claims and secured claims until a decision on the rehabilitation is made.
Angang Construction, established in 2015, operates under the housing brand 'Dior 9.' The company has been expanding its business by constructing 'The Lux9' officetels in Gyeonggi's Gimpo and Yongin areas. However, it has reportedly faced management difficulties due to issues recovering construction costs for its logistics center in Seonggok-dong, Ansan, leading to a project financing debt of 83 billion won.
As of 2023, Angang Construction's revenue amounts to 233.3 billion won, with a net profit of 1.11 billion won, and a debt ratio reaching 157.5%. These financial difficulties are expected to have a major impact on the company's chances of rehabilitation in the future.
Sambo Construction Also Applies for Court Receivership, Raising Concerns About Chain Bankruptcy
Sambo Construction, ranked 71st in construction capacity assessment, has applied for court receivership. This comes just two months after the applications for court receivership by Shin Dong-A Construction, ranked 58th, and Daejeo Construction, ranked 103rd, in the previous month.
Currently, the construction industry is experiencing heightened liquidity crises among small and medium construction companies due to skyrocketing construction costs and increasing unsold units. Experts analyze that there is a high likelihood of additional bankruptcies occurring among construction companies as a result. Notably, other companies such as HanYang Industrial Development, rated 91st, Isu Construction, Daebang Industrial Development, and Dongwon Construction Industry are also mentioned as potentially applying for court receivership due to worsening financial conditions.
For instance, as of the end of 2023, HanYang Industrial Development's debt ratio has reached 820%, with construction receivables amounting to 153.7 billion won. Isu Construction also faces a debt ratio of 817%, with short-term borrowings reaching 56.3 billion won, indicating serious deterioration in financial structure. This situation is causing significant shocks within the construction industry, with concerns for future prospects.
Daewoo Shipbuilding & Marine Engineering Construction Files for Court Receivership... Second Bankruptcy Crisis
According to reports from the construction industry on the 28th, Daewoo Shipbuilding & Marine Engineering Construction, ranked 138th in construction capacity assessment, has applied for court receivership. Known for its housing brand 'Elcru', this company had previously applied for court receivership at the end of 2022 and made efforts toward recovery after being acquired by real estate developer Sky-I&D in August 2023, but it has ultimately found itself in a second bankruptcy crisis.
According to data from the Financial Supervisory Service, Daewoo Shipbuilding & Marine Engineering Construction's debt ratio at the end of 2023 has reached 838.8%, double that of Shin Dong-A Construction (428.8%), which recently applied for court receivership. The deterioration of the construction and real estate market has made it impossible for Sky-I&D to secure additional funds, leading to the inevitable application for court receivership by Daewoo Shipbuilding & Marine Engineering Construction.
This situation starkly illustrates the difficulties currently facing the construction industry.
Realization of ‘IMF-level Crisis’ in the Construction Industry
This year, following Shin Dong-A Construction, Sambo Construction, Angang Construction, Daejeo Construction, Daewoo Shipbuilding & Marine Engineering Construction, and now Samjeong Corporation, mid-sized construction companies have been applying for court receivership, deepening the crisis in the construction industry. According to the Construction Industry Information System, 102 general construction companies have closed their doors this year alone, and concerns about additional bankruptcies are being raised.
Experts analyze that "the sharp increase in construction costs, interest rate hikes, and rising unsold units are deteriorating liquidity among small and medium-sized construction companies," emphasizing that "urgent measures from the government are necessary." With the budget for social overhead capital (SOC) projects significantly reduced, financial support is needed to prevent further bankruptcies among construction companies.
This situation is expected to greatly impact the future of the construction industry and highlights the importance of cooperation between the government and the industry.
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