Industry wary of Taeyoung woes despite debt restructuring approval

The Taeyoung E&C's headquarters in Yeouido, Seoul / Yonhap

The local construction industry remains uneasy about the possibility of a chain reaction of insolvencies and defaults by small players, despite Thursday’s approval of engineering and construction firm Taeyoung E&C's debt renegotiation plan, according to market watchers.

The approval pushes back the settlement of debt with financial entities only for the next four months. This means Taeyoung will have to come up with about 500 billion won ($380 million) in operating funds in the meantime to cover its partner firms’ labor and construction costs.

Mounting to the concerns is a possible delay in sales of lucrative affiliates of TY Holdings, the holding firm of Taeyoung Group, in an attempt to salvage the troubled construction affiliate.

Many say the sales of Ecorbit, the recycling subsidiary jointly held by the holding firm and KKR, or Kohlberg Kravis Roberts, will not materialize within the four-month timeframe as outlined by creditors. They say Taeyoung will rush to sell off the subsidiary worth up to 3 trillion won in value, whereas the American private equity firm balks at the idea of underselling at the expense of investors.

Also at play is a possible increase in contingent liabilities of the troubled construction firm other than the 2.5 trillion won identified thus far. Due diligence in the coming months will assess the corporate financials of Taeyoung. Whether Taeyoung will comply with the self-rescue measures in time remains to be seen.

State-run lender Korea Development Bank (KDB) approved the debt restructuring plan on the condition that the process be suspended once Taeyoung fails to fulfill the agreed upon responsibilities or is found to have significant additional debt. The KDB-led creditors will meet April 11 to determine the course of the plan.

Partners

The construction affiliate has over 600 subcontractors, almost all of whom have received no payments since Dec. 29 of last year, a day after Taeyoung applied for debt renegotiations. It failed to pay 45.1 billion won in accounts receivables-backed loans.

The issue was addressed during the Jan. 9 press conference. Taeyoung said commercial bonds will be settled to help its partner companies pay workers’ wages.

The pledge coincides with a joint investigation by the Fair Trade Commission and the land ministry into whether the construction affiliate extended payment guarantees with subcontractors within 30 days of the signing of the contract.

Similarly, the labor ministry will investigate 105 Taeyoung-commissioned construction sites on overdue wages suspicions from Jan. 15 to Feb. 8

According to Korea Investors Service, the outstanding project financing loan guarantees at 16 top builders stood at 28.3 trillion won as of September last year, up 75 percent from December of 2020.

A Korea Ratings survey of 23 brokerages on project financing risk exposures expected in the first half of this year came to 11.9 trillion won.

The finance ministry said the Taeyoung developments will be closely monitored to limit repercussions on construction workers, partner firms and apartment buyers.