S. Korean Banks face potential losses after Taeyoung E&C, a South Korean construction firm ranked 16th, filed a debt workout on Dec. 28. Financial institutions that lent the company over 700 billion won($542 million) are preparing for the following measures.
This move has prompted banks and other financial firms to intensify their monitoring of real estate project finance (PF) businesses, amid growing concerns over the stability of small and medium-sized construction companies.
According to financial sources, Taeyoung E&C, a company facing financial difficulties, had a total debt of $561 million at the end of the third quarter. This debt includes $363 million borrowed for the long term and $170 million borrowed for the short term from South Korean banks. A significant portion of the long-term debt consists of PF loans.
Taeyoung E&C owes significant amounts of money to several banks, with the Korea Development Bank (KDB) being the largest creditor. KDB’s exposure includes PF loans worth $ 100 million, short-term borrowings of $55 million, and bonds worth $15 million.
KB Bank is the largest provider of PF loans to Taeyoung E&C, having provided $116 million in PF loans and $7.7 million in short-term borrowings for a total of $124 million.
Other banks with substantial loans to Taeyoung E&C include the Industrial Bank of Korea (IBK), with $77 million in PF loans, Woori Bank with $55 million in short-term borrowings.
Shinhan Bank has provided loans amounting to $49 million, consisting of $33 million in loans for project finance and $15 million in short-term borrowings. On the other hand, Hana Bank has provided loans amounting to $47 million won, consisting of $13 million in loans for project finance and $34 million in short-term borrowings.
Despite the challenges, some banks like KB Bank have minimized the potential impact of PF loans. They claim that the risk is reduced due to 100 percent guarantees from the Korea Housing and Urban Guarantee and the fact that the related projects are complete and in the final stages of sale.
