Sejong Construction Files for Bankruptcy

Blow to Middle-Standing Enterprises with Weak Financial Power-

According to financial and construction business circles on September 5, Sejong Construction finally filed for bankruptcy on September 4 as it was unable to repay an overdue bill worth 2.3 billion won which was returned to Bupyeong branch of Korea Exchange Bank.

Sejong Construction was ranked 191st in the construction-ability assessment this year, and is constructing 55 large scale Town Houses in Dongbaek, Yongin, Gyeonggi Province, and 81 apartment buildings in Dongseon-dong, Seongbuk-gu, Seoul.

The Town House project in the Dongbaek area is a self owned business in which Sejong Construction purchases land and constructs buildings. But in the apartment project in Dongseon-dong, Sejong Construction is only in charge of construction based on a contract.

Sejong Construction has been experiencing financial hardship because the apartments it completed at the end of last year in Munhyeon-doing, Nam-gu, Busan, and Munsu-dong, Yeosu, Jeonnam, have largely remained unsold, though the houses in Dongbaek experienced strong sales.

Sejong’s sales for last year amounted to 68.6 billion won, or a 25% decrease compared to 2005 (91.8 billion won). Net income also dropped from 670 million won to 120 million won.

“We were unable afford the construction because the balance of the apartment prices were unpaid, and when the banks recollected their loan we depended on deposit banks for capital – the interest on which we were incapable of handling,” explained Sejong Construction.

Korea Housing Guarantee, Co. Ltd., which is in charge of the sales guarantee of Sejong Construction, plans to implement measures to prevent contract breach by selecting a new construction company.

Number of Unsold Apartments Largest in Nine Years-

The bankruptcy of Sejong Construction is thrusting a threat of chain bankruptcy throughout the housing business circle.

In addition to the collapse of middle-standing businesses one after another since October last year, Sejong Construction and other companies well-known around Myeong-dong are said to be bankrupt or near bankrupt.

What aggravates the chain bankruptcy of housing companies is the steep rise in the number of unsold houses.

According to the Ministry of Construction and Transportation, the number of unsold houses as of June this year was 89,924 – the highest record in nine years since the end of 1998 (102,701). In addition, it is predicted that the oversupply of houses will not be corrected for quite some time since 94% of unsold houses are in the provinces.

Moreover, as the recent shortage of contracts that occurred in Jinjeob area in Namyangju, Gyeonggi, shows, symptoms are appearing that the oversupply of houses will spread to the metropolitan region.

It is because the adoption of a price ceiling is leading those in the market for houses to wait for cheap apartments while the companies are hurrying to sell houses in order to get rid of construction land they have secured.

Experts point out that the financial difficulty of housing companies is being exacerbated by higher dependency on capital or deposit bank loans, carrying interest rates of more than 10% p.a. as a result of banks avoiding additional lending to housing companies.

“Earlier this year, housing companies went bankrupt because of unsold houses, but now the rise of interest rates and the lack of demand are acting as additional variables,” explains researcher Kim Hyeon-ah at Construction ＆ Economy Research Institute of Korea. “It is highly probable that more companies will go bankrupt.”

mint4a@donga.com koh@donga.com