Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
GS faces stock, rating fall amid construction scandal
An apartment complex constructed by GS Engineering & Construction suffers flood damage in Seoul, Tuesday. Screenshot from online community
By Lee Min-hyung
By Lee Min-hyung
GS Engineering & Construction (GS E&C) is forecast to suffer an additional fall in its stock price and credit ratings, hit hard by its involvement in a series of construction fraud scandals.
According to data from the Korea Exchange, GS E&C shares extended a sharp decline of around 26 percent this month alone. Its stock price closed at 14,220 won per share, Wednesday, down 1.66 percent from a day earlier. This marks a 10 year low.
Coupled with the bleak stock outlook, the company may also undergo a possible ratings drop in the face of worsening investor sentiment. Multiple ratings agencies here leave open the scenario, as GS is widely expected to have a tough time repaying real estate project financing loans following the upcoming administrative discipline that will be meted out by the government.
To make matters worse, investors express growing fears over the firm's construction abilities. Pedestrian paths and a community center of an apartment complex in southern Seoul, constructed by the GS affiliate, were flooded overnight by heavy rain.
This came only a few months after a roof collapsed in an underground parking garage of another GS-constructed apartment complex in Incheon in April. The company issued a public apology and decided to bear the 550 billion won loss by demolishing it and rebuilding it completely.
“The GS subsidiary may have to bear an additional financial burden in its real estate project financing if investor sentiment aggravates on negative corporate outlook due to such factors as a credit ratings fall and administrative punishment,” said Kwon Joon-sung, a senior researcher at NICE Investors Service.
There stands ample possibility for Korea's three major ratings agencies ― Korea Ratings, Korea Investors Service and NICE ― downgrading the firm's stable A+ rating to A for the first time since 2021.
GS E&C may follow in the footsteps of HDC Hyundai Development Company, which also had its ratings dip to A last year after a collapse at one of the firm's apartment building construction sites in Gwangju, which saw six workers die.
Local brokerage houses are on track to revise down GS' target stock price. Yuanta Securities cut the price down to 22,000 won per share from 30,000 won. Hanwha Investment & Securities also adjusted the figure from 31,000 won down to 16,000 won.
Market analysts advised investors to reduce their portion in construction stocks for the time being.
“It is too early to say construction stocks have hit the bottom,” said Lee Min-jae, an analyst at NH Investment & Securities. “The issue will continue to cast a negative impact on the company's stock price until the Ministry of Land, Infrastructure and Transport completes its inspection on it next month.”