Financial Crisis Taking Heavy Toll on Builders

Korean companies are trembling for fear of bankruptcy, with builders bearing the brunt of economic hardship and manufacturers going under left and right.

According to the Financial Supervisory Service and the financial industry, the number of general and specialized construction companies going insolvent between January and September this year was 251, up 47.6 percent from the same period last year.

With the number of unsold apartments reaching a record high of 161,000 as of the end of July, the loan default rate of small and medium-size construction companies rose from 1.46 percent last year to 2.26 percent at the end of June this year.

People are finding it difficult to sell their properties despite a dramatic drop in prices.

On Friday, a construction company ranked among the top 40 companies in contract size narrowly avoided insolvency. Other negative signs show certain mid-size builders are on the verge of crisis.

The delinquency rate for project financing loans, which is considered a trigger for a financial crisis, is on the rise starting from non-metropolitan areas. According to the Bank of Korea, the delinquency rate for project financing loans in Gangwon Province was 8.65 percent at the end of June, 8.31 percent in North Gyeongsang Province, and 1.22 percent in South Gyeongsang Province, much higher than the national average of 0.68 percent.

The delinquency rate for the banking industry was relatively low at 0.64 percent, considering savings banks` rate was 14.3 percent.

As for manufacturers, Samjung Steel Corp. filed for bankruptcy Oct. 20 and transactions of Sambo Steel Co., Ltd were suspended Oct. 22. C&Group, which has subsidiaries such as C&Heavy Industries and C&Woobang, is reviewing a debt workout request to its creditors.

The expected recession next year will start to deal a heavy blow to the real economy, and with more companies going belly-up, the possibility of a financial crisis is very real.

A senior officer at a commercial bank said, “Troubled companies must find ways to save themselves even by aggressively selling their assets at sharply lower prices.”

parky@donga.com jaeyuna@donga.com