"Is the Nightmare of the Financial Crisis Returning?"... 'Unclaimed Construction Costs' Increase by 21% in 6 Months

Top 10 Construction Companies Report Unbilled Construction Amount of 12.6515 Trillion KRW in First Half of This Year
Legal Teams Busy Reviewing Contracts to Check Unbilled Construction Risks

[Asia Economy Reporter Cha Wanyong] The 'unbilled construction amount' of the top 10 domestic construction companies increased by 21% over six months. This is analyzed as a result of a combination of factors, including the resumption of overseas projects that were postponed or canceled after the COVID-19 pandemic, the domestic housing market slump caused by interest rate hikes, and inflationary pressures triggered by external variables such as the Ukraine war.

Unbilled construction refers to amounts that have not yet been billed compared to accounts receivable (construction payments), and a rapid increase in this amount is highly likely to cause liquidity deterioration. Especially now, with the domestic real estate market downturn and unstable global economic conditions, the risk is even higher than during past financial crises.

According to the Financial Supervisory Service's electronic disclosure system on the 23rd, the total unbilled construction amount of the top 10 construction companies in the first half of this year was 12.6515 trillion won. This is a 21.2% increase from 10.4338 trillion won at the end of last year, six months ago.

In particular, Hyundai Construction's unbilled construction amount is rising sharply. Hyundai Construction recorded 2.4309 trillion won in the first half of this year, increasing by nearly 400 billion won in six months. After the global financial crisis caused a large-scale earnings shock in the domestic construction industry in 2013, Hyundai Construction had been reducing its unbilled construction amount, but it has been trending upward again since last year.

In fact, Hyundai Construction's unbilled construction amount peaked at 4.8898 trillion won at the end of 2014, dropped to 1.6539 trillion won in 2020, but increased by nearly 1 trillion won in just one and a half years.

The increase in unbilled construction amounts is occurring across the construction industry. Based on the 2022 construction capability evaluation, all top 10 construction companies increased their unbilled construction amounts in the first half of this year compared to the end of last year.

▲ Samsung C&T 1.4274 trillion won (as of December 2021, 1.2488 trillion won) ▲ DL E&C 676.7 billion won (651.8 billion won) ▲ POSCO Construction 1.3855 trillion won (1.0424 trillion won) ▲ GS Construction 1.2592 trillion won (960.3 billion won) ▲ Daewoo Construction 1.1139 trillion won (939.9 billion won) ▲ Hyundai Engineering 1.239 trillion won (1.0039 trillion won) ▲ Lotte Construction 1.5511 trillion won (1.3171 trillion won) ▲ SK Ecoplant 858.5 billion won (573.6 billion won) ▲ HDC Hyundai Development Company 709.3 billion won (636.5 billion won).

Unbilled construction refers to an accounting account representing amounts that a construction company has completed but has not yet billed to the client. In industries like construction, where manufacturing products takes a long time, the contractor recognizes revenue in advance based on the progress rate of the construction. If the construction payment is received corresponding to the revenue recognized in advance, there is no problem, but if not, the previously recognized unbilled construction amount turns into a loss.

The construction industry is also becoming tense as the increase in unbilled construction amounts is significant. Especially, worrying about external uncertainties such as the global economic downturn, they are moving toward comprehensive management of unbilled construction amounts.

A construction company official said, "Recently, the company is carefully checking the risks related to unbilled construction due to concerns about unstable macroeconomic conditions," adding, "To prevent problems like those during the past financial crisis, even the legal team is preparing by reviewing contracts."

This content was produced with the assistance of AI translation services.