Dongbu subcontractors face liquidity crisis

By Kim Jae-won

Hundreds of Dongbu Corp. subcontractors are facing a liquidity crisis after the group’s mid-sized construction unit filed for court receivership Wednesday, financial authorities said Thursday.

The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) said about 280 subcontractors with transactions worth more than 500 million won ($459,000) faced a credit crunch.

“We do not rule out the possibility that subcontractors, which have had relatively big size orders, will face a credit crisis,” the authorities said in a statement, after an urgent meeting chaired by Koh Seung-beom, head of the General Administration Division of the FSC.

The subcontractors had combined orders worth 198.1 billion won with an average of 700 million won per subcontractor, according to the statement.

The authorities also said they would look into 23 Dongbu subcontractors, whose exposure to the construction company was more than 10 percent of their annual revenue. The FSC and the FSS said that to avoid additional court receivership, they would restructure subcontractors in crisis through workout programs.

Korea Development Bank (KDB), Dongbu’s main creditor, said it would seek to protect the subcontractors in cooperation with the authorities and the court. Dongbu owed 261.8 billion won to financial companies, including the state-run KDB.

The key creditor bank has been reluctant to extend financial support to the group as its chairman, Kim Jun-ki, has not accepted creditors’ demands that he give up managerial control of the group in return for financial support.

Dongbu, well-known for its Centreville apartments, has accumulated debts totaling 137 billion won due to mature by the end of 2016, with retail investors accounting for 23 billion won. It has struggled to repay the loans since its apartment construction businesses in Seoul, Incheon and Gyeonggi Province were hit by the 2008 global financial crisis.

The builder is a construction arm of the nation’s 18th-largest conglomerate Dongbu Group, whose business portfolio ranges from insurance to construction to steelmaking. It has been under pressure from its creditors to beef up its deteriorating financial situation.

However, the financial authorities said that impact on affiliates of the court receivership of Dongbu Corporation would be limited because they have been preparing for a potential crisis.

Dongbu Steel has been undergoing a creditor-driven tough reconstruction program since July, while Dongbu CNI sold its information technology business for 90 billion won to solve liquidity problems.