Lotte, Dongbu vow not to follow in Taeyoung's footsteps
Taeyoung Engineering & Construction headquarters in Seoul / Yonhap
As Taeyoung Engineering & Construction (E&C) is going through a rough phase of debt restructuring negotiations, other construction companies are taking proactive moves to explain their liquidity situations, aiming to quell market anxieties over their financial soundness.
Lotte Engineering & Construction (E&C) issued a press release on Thursday, emphasizing that it has no problems in managing its contingent liabilities related to real estate project financing, as it has "secured sufficient liquidity."'
"Out of 3.2 trillion won ($2.4 billion) worth of unfinished real estate projects that face maturity dates coming in the first quarter, 2.4 trillion won will be shifted to a long-term financing structure through the creation of funds involving financial institutions, including commercial banks, within this month. The remaining 800 billion won is also slated to be resolved through transferring into a lower-interest rated project financing within the first quarter," Lotte E&C said.
The construction company's statement came after Hana Securities published an analysis report earlier this week, warning of a liquidity risk on the part of Lotte E&C, given the company's contingent liabilities on real estate project financing.
"Lotte E&C has reduced its project financing contingent liabilities by approximately about 1.6 trillion won so far, and has reduced the firm's debt ratio by over 30 percent, compared to the end of the previous year," the company explained, stressing that it does not have liquidity issues.
Lotte Engineering & Construction (E&C) CEO Park Hyun-chul, left, and Dongbu Corp. CEO Yun Jin-o. Courtesy of Lotte E&C and Dongbu Corp.
Dongbu Corp., another major construction company in Korea, also released a statement on Friday, aiming to assure the market's growing concerns over it as well as the construction sector.
"Dongbu Corp. is maintaining financial stability, having secured over 300 billion won worth of liquidity in the fourth quarter of last year," the statement reads, specifying that the firm had secured the sum through collection of overseas construction payments and completed construction projects, as well as loan recovery during the quarter.
The construction company went on to accentuate that it plans to implement low-interest rated business capital loans as scheduled, while reducing interest costs and debt repayment burdens by continuing to repay high-interest rated operating funds.
Regarding real estate project financing contingent liabilities, the company asserted that it remains very small.
"The market has a growing sense of unease over the overall construction industry, with negative forecasts continuing. However, there is a concern over potential secondary impacts on other companies, due to the proliferation of ungrounded rumors," the firm's official said.
Financial Services Commission (FSC) Chairman Kim Joo-hyun speaks during a meeting held to discuss grassroots financial support in central Seoul, Friday. Yonhap
Financial authorities seem to be sharing such concerns. Financial Services Commission (FSC) Chairman Kim Joo-hyun, the country's top regulator, said Friday that it is crucial to cut off the market's unwarranted panic sentiments.
"Many times, it's widely unclear how risky or stable a company is," Kim said. "If the market is swayed to believe that the situation is entirely bad, then a really dire situation could unfold," he said, adding that he views Lotte E&C is not only largely different from Taeyoung E&C in terms of business models, but also Lotte has secured a significant liability since last year.