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A construction company that ranks among Korea¡¯s top 40 builders barely avoided bankruptcy a few days ago by making its payment on a maturing debt. Another mid-sized business involved in the shipbuilding and construction sector is rumored to be preparing to file for creditor-led restructuring.
During the first 9 months of this year, 251 construction companies went bankrupt, up 48 percent compared to last year. But none were included in the top 100 builders, so there was no significant impact on the overall economy. But if struggling mid-sized construction companies follow suit, the impact will be much more serious. Regional economies and related businesses would be hit hard, while financial institutions would see a rise in the number of insolvent loans, leading to uncertainties in the financial sector. If that happens, then the Korean financial market will again turn volatile, despite finding respite due to the $300-billion currency swap agreement with the United States.
The W9 trillion (US$1=W1,295) support measure for the construction industry the government announced on Oct. 21 has yet to benefit builders, as the process of reviewing the list of unsold apartments nationwide is still incomplete. Meanwhile, fears in the construction industry are increasing as financial conditions worsen.
The government and financial institutions must speed up the process of aiding construction companies. In times of emergency, such as now, the focus should not be on procedure but efforts to save companies that can and must be saved.
At the same time, shaky businesses must either be allowed to close down or become leaner and more efficient. Even though they may be mid-sized, or larger, companies, builders with no potential for survival should be shut down soon rather than be placed in limbo by receiving emergency infusions of cash. That is the only way to avoid wasting taxpayers¡¯ money and reduce economic uncertainty.
The government should propose solid measures to prevent bankruptcies in construction from triggering a chain reaction of insolvencies among subcontractors and suppliers. Also needed are measures to protect those who signed purchase deals for new apartments being constructed. Korea Housing Guarantee Co. should either return money to those who signed apartment deals, or another builder should be chosen to complete the apartments. The entire process of supporting builders must be sped up.
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