[Corporate Financing] Doosan Construction, the Sole Path of 'Construction Accounts Receivable Securitization'

450 Billion Secured as Construction Payment Basis in June
Funding for Sinbundang Line, Gwangmyeong Medical Complex Cluster, etc.

[Asia Economy Reporter Lim Jeong-su] Doosan Construction continues to raise funds through the securitization of construction accounts receivable from major construction projects. Securitization of accounts receivable is considered the only means for Doosan Construction, whose credit rating has plummeted, to secure funds in the capital market.

According to the investment banking (IB) industry on the 22nd, Doosan Construction raised 45 billion KRW through two rounds of construction payment securitization under the management of BNK Investment & Securities in June. The condition is to prioritize repayment of borrowings with the construction payments to be received according to the progress of the construction. This was done to convert future construction payments into cash in advance to prepare for urgent funding needs.

On the 19th, Doosan Construction issued short-term bonds worth 30 billion KRW based on the construction payments for the Shinbundang Line Yongsan~Gangnam section ordered by SaeSeoul Railroad Co., Ltd. and the Gwangmyeong Medical Complex Cluster new construction ordered by Gwangmyeong Hana Bion Co., Ltd. The expected construction payments to be collected by May next year amount to 48.7 billion KRW for the Shinbundang Line and 71.2 billion KRW for the Gwangmyeong Medical Complex Cluster, totaling 120 billion KRW.

SaeSeoul Railroad is a Doosan Group subsidiary responsible for operating the Shinbundang Line, with shares held by KIAMCO SaeSeoul Railroad Private Special Asset Investment Trust (69.95%), Doosan Construction (13.75%), and Hanwha Construction (6%).

Aerial View of Gwangmyeong Medical Complex Cluster

Gwangmyeong Hana Bion's major shareholders include DLS Planning (32%), the project developer, KSL Company (28%), where Lee Chang-yeop, CEO of Gwangmyeong Hana Bion, is a shareholder, and Hana Financial Investment (19.9%). At the end of last year, they secured 500 billion KRW in project financing (PF) funds for the complex cluster development, including Chung-Ang University Medical Center, under the management of Hana Financial Investment. Currently, Lotte Construction and Doosan Construction are in charge of construction.

Earlier on the 4th, Doosan Construction issued short-term bonds based on construction payments for the Korea Culture Theme Park under construction in Yeongju City, Gyeongbuk Province, the Sinlim Bongcheon Tunnel ordered by Seoul City, and Section 1 of the Seoul-Munsan Expressway. The estimated construction payments expected by May next year are 10.8 billion KRW, 5.3 billion KRW, and 8.6 billion KRW respectively, totaling 24.7 billion KRW.

An IB industry official evaluated, "There are no major issues with the progress of the construction projects Doosan Construction has won, and since many of the clients are local governments, the stability of collecting construction payments is relatively high." The official added, "If the construction proceeds smoothly, the collection of payments and repayment of borrowings are expected to be carried out without significant problems."

The funds raised are expected to be used for refinancing borrowings. As of the end of the first quarter this year, Doosan Construction's borrowings totaled 561 billion KRW, with over 400 billion KRW being short-term borrowings due within one year. Net borrowings excluding cash equivalents amount to around 500 billion KRW. On the other hand, repayment capacity remains weak as losses continue this year. The credit rating has fallen to B-.

Therefore, to repay borrowings, it is necessary to continuously securitize construction payments or sell assets such as construction rights. An industry insider said, "Doosan Group affiliates, including Doosan Construction, are in a state where it is difficult to raise funds independently," and predicted, "Doosan Construction will continue to raise funds through construction payment securitization for some time."

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