Kolon Global and Kumho Construction Secure Liquidity through Private Bonds and CP

Declining Profitability in Construction Industry and Growing Concerns Over PF Contingent Liabilities
Financing Costs Rise to 8-9% Amid Financial Burdens

Mid-sized construction companies such as Kolon Global and Kumho Construction secured liquidity through high-interest private bonds. Due to declining profitability in the construction sector and concerns over contingent liabilities from project financing (PF), the borrowing rates rose to the 8-9% range.

According to the investment banking (IB) industry, Kolon Global issued private bonds worth 68 billion KRW on the 22nd. The bond maturity is 1 year and 6 months, with an issuance rate of 8.3%. The Korea Development Bank and Korea Investment & Securities were among the buyers of the private bonds issued by Kolon Global.

Kolon Global has been unable to enter the public bond market for a long time due to credit rating issues and has mainly raised funds by issuing private bonds. In March, it also secured liquidity by issuing 30 billion KRW of private call option bonds at 7.926%. At that time, Korea Investment & Securities and others purchased the bonds. Recently, Kolon Global also increased its commercial paper (CP) issuance to 20 billion KRW. After fully repaying CP in February this year, there had been no CP issuance, but due to urgent liquidity needs, it borrowed 10 billion KRW again in July and increased the balance to 20 billion KRW in August.

In January this year, Kolon Global spun off its imported car sales and audio distribution businesses, leaving only the construction and trading divisions. Although the spin-off significantly reduced debt repayment burdens, cash flow worsened due to declining profitability in the construction sector. Sales in the first half of this year reached 1.3021 trillion KRW, about 2% higher than the same period last year, but operating profit and net profit were only 26.4 billion KRW and 29.3 billion KRW, respectively, down 68.4% and 53.55% compared to the same period.

Although debt was significantly reduced by the spin-off, uncertainties over contingent liabilities from PF in the construction sector remain. As of the end of March this year, Kolon Global's contingent liabilities related to PF sites amounted to 1.7094 trillion KRW. These contingent liabilities, including joint guarantees and funding supplementation agreements, are debts Kolon Global must bear if the project operators become insolvent and PF debt repayment becomes difficult.

Kumho Construction issued private bonds worth 10 billion KRW on the 23rd. The maturity is 1 year and 6 months, with an issuance rate around 9.6%. Shin Young Securities and others reportedly purchased the private bonds issued by Kumho Construction. Kumho Construction is also facing increasing difficulties in raising funds due to financial burdens caused by poor sales in its housing construction business. In particular, poor sales rates at local projects in Jincheon and Okcheon Maam-ri in Chungbuk, and Sinjeong-dong in Ulsan have worsened cash flow and increased financial burdens. The financial structure deterioration of group affiliates, such as the major shareholder Kumho Express whose debt ratio exceeds 600%, is also a factor contributing to financial strain.

An IB industry official said, "Mid-sized construction companies are urgently securing liquidity through high-interest private bonds and ultra-short-term CP due to deteriorating construction sector performance and concerns over PF defaults," adding, "Even so, demand in the market is not strong."

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