[비즈한국] An 'April crisis' rumor is circulating through the construction industry. The talk is that it is not just mid-sized construction firms ranked around 100th, but also major builders around the top 10 that are at risk. In fact, Lotte E&C is pushing to sell its headquarters site, and other firms are abandoning even large-scale projects, citing 'low profitability.' Observers say this perfectly reflects the current atmosphere in the construction industry, where companies are focusing all liquidity on survival while only pursuing projects that are guaranteed to turn a profit.
Lotte E&C moves to secure 1 trillion won including headquarters site
There is significant concern that corporate rehabilitation filings by mid-sized construction firms such as Shindong-ah Construction and Sambu Construction001470 could spread to large builders. The outlook suggests that the aftermath of the construction industry's downturn is extending, leading to crises even at major firms.
The company attracting the most attention is Lotte E&C. Lotte E&C has moved to secure 1 trillion won in liquidity, including the sale of its headquarters site. It is reviewing a plan to sell the land housing its headquarters in Jamwon-dong, Seocho-gu, Seoul, which it has used since 1980. Beyond selling this prime real estate, valued at around 500 billion won, the company is also considering the sale of warehouse assets in the metropolitan area and its stakes in rental housing REITs.
DL E&C375500, the 5th largest builder in the industry, and the DL Group, which owns DL Chemical, have also decided to sell three GLAD Hotels located in Yeouido and Gangnam in Seoul, as well as Jeju Island. The group shifted to a deficit last year, reporting an operating loss of 22.4 billion won in the fourth quarter on a tentative consolidated basis; this is interpreted as an aggressive move to secure liquidity as it anticipates the construction crisis will persist for some time. The hotel sector is generally popular in the M&A market as it is considered relatively profitable, and the company is currently in sale negotiations with the Singaporean sovereign wealth fund, which has been selected as the preferred bidder. The industry estimates the sale price to be around 600 billion to 700 billion won.
Some are also abandoning low-profit projects. Late last year, Kumho E&C002990 withdrew from the 224.2 billion won Daejang-Hongdae metropolitan railway project commissioned by the Ministry of Land, Infrastructure and Transport. Although it was a large project accounting for 10.9% of the company's annual revenue, the decision was made based on the judgment that the profitability was too low relative to the costs involved. This reflects an atmosphere of focusing only on projects with higher profit margins.
Government offers support, but critics say it is "disconnected from reality"
The construction market is so negative that there is no 'hope' in sight. The Bank of Korea predicts that construction investment in the first half of this year will drop by 6.7% compared to the same period last year. This is a steeper decline than the 5.5% drop seen in the second half of last year.
The problem is that there is no end in sight to the 'tunnel of stagnation' that began last year. This is why rumors of an impending crisis—where filings for court receivership could surge among mid-sized and small builders in April—are spreading. An official from the construction industry said, "There is a reason for the talk that bankruptcies and rehabilitation filings will start with mid-sized and small builders in the provinces that have weak liquidity."
The government is aware of this and has introduced countermeasures, aiming to expedite SOC (Social Overhead Capital) projects. It plans to commission 47 SOC projects—including roads, industrial complexes, railways, and new airports—and execute 70% of the SOC budget in the first half of the year to boost the industry.
However, the financial sector says this is woefully insufficient. An official from a state-run financial institution expressed concern, stating, "Even in some redevelopment projects in the metropolitan area where there is money to be made, construction companies are so desperate for every penny that they are willing to go to court over construction cost increases. The crisis is serious for major firms, but it is truly dire for builders operating with PF (Project Financing) in the provinces where apartment presales are failing. If no further measures are taken, bankruptcies among builders ranked 50th to 100th will start to appear from April."