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| An apartment construction site in Seoul / Yonhap |
By Park Jae-hyuk
Domestic builders are facing growing concerns over the possibility of a series of bankruptcies amid worsening investor sentiment in the wake of the recent slump in the real estate market, according to industry officials, Thursday.
Late last month, Wooseok Construction, a medium-sized builder based in South Chungcheong Province, failed to repay its debt in time. If the company fails to make the payment again, it will be forced into bankruptcy.
The builder's financial risk is mainly attributed to soaring raw material prices, so most other provincial builders are also feared to follow Wooseok, given that they sought rapid expansions when the real estate market was overheating.
Data provided by the Ministry of Land, Infrastructure and Transport to Rep. Kim Byung-wook of the main opposition Democratic Party of Korea showed that eight builders went bankrupt during the first seven months of this year. Among them was a large-size builder that had been paid over 50 billion won ($35 million) for its construction works during the previous year.
According to the data, 12 construction firms went broke last year and none of them were paid over 50 billion won for their works a year earlier.
"If builders go bankrupt one after another amid fears of a perfect storm, there will be a vicious cycle of a rising unemployment rate and the economic recession," Rep. Kim said. "The Financial Services Commission and the land ministry should take measures to prevent builders from going broke."
After Lotte E&C announced on Tuesday that it decided to issue new shares worth 200 billion won, concerns have even emerged over the financial soundness of larger builders.
A rumor even spread among securities industry officials earlier this week that Lotte E&C's financial difficulties caused a setback in the fundraising of its affiliate, Lotte Capital, although both companies denied the rumor.
"In collaboration with the group and affiliates, we have maintained a stable financial structure," Lotte E&C said in a press release.
Korea Investment & Securities analyst Kang Kyung-tae supported the claim, saying that it is inappropriate to forecast a large builder's possible bankruptcy at this moment.
"All possible negative factors regarding the construction industry have been reflected in their stock prices," the analyst said.
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