"Corporate Bond Boom? Not Just Anyone Can Do It" The Shadow Over the Construction Industry

Successful Recent Corporate Bond Issuance
Hyundai Construction, Lotte Construction, SK Ecoplant
Thanks to the Presence of Large Conglomerate Groups

Concerns Over 'Aftershock' if Issuance Fails
General Construction Companies Are Cautious

Although major construction companies have consecutively succeeded in issuing corporate bonds, it is expected to be difficult to dispel the concerns surrounding the construction industry. These companies either have strong backing or have succeeded in issuing corporate bonds, but when considering interest rates, it is hard to evaluate this as a true success. In particular, if a company fails to issue bonds, the aftermath can be difficult to manage, leading to criticism that the small number of successful fundraisings does not represent the industry's reality.

Successful Construction Companies Have Different Conditions

According to industry sources on the 2nd, the construction companies that succeeded in bond issuance last month are summarized as Hyundai Construction, SK Ecoplant, and Lotte Construction. Hyundai Construction received orders worth 685 billion KRW against a target of 160 billion KRW on the 22nd of last month. Lotte Construction conducted a demand forecast for 200 billion KRW in corporate bonds on the 31st of the same month, resulting in 344 billion KRW being raised.

A representative from Company A said, "Hyundai Construction is an affiliate of Hyundai Motor Company, and Lotte Construction received credit enhancement through guarantees from Lotte Chemical," adding, "Since there is a supporting group backing them, the bond market views these construction companies as stable and prefers them." He added, "The conditions for issuing corporate bonds are fundamentally different from other construction companies that lack such support."

SK Ecoplant went as far as removing the construction company label when issuing corporate bonds. From the investment prospectus disclosed during the bond issuance, it emphasized 'environmental business' and 'energy business' first, defining itself as a 'comprehensive environmental business company.' An SK Ecoplant representative said, "We are transitioning our business model from a traditional construction company to an environmental energy company and are increasing the proportion of sales in this area." As of the third quarter of last year, the new business sales accounted for 35% of total sales.

A representative from Company B said, "The reason why SK Ecoplant's 130 billion KRW bond demand forecast attracted over five times that amount, 700 billion KRW, is because it created the perception that it is not a construction company," adding, "With climate change becoming a hot topic and eco-friendly and renewable energy businesses rising, it has benefited from a favorable market atmosphere, which differs significantly from general construction companies." SK Ecoplant is also a subsidiary of SK Corporation.

Greater Damage if Corporate Bond Attempts Fail

Except for cases involving large conglomerate affiliates, the reality of the construction industry is that companies cannot even dare to raise funds by issuing corporate bonds. GS Construction’s credit rating was downgraded on the 1st. This adjustment followed an eight-month business suspension imposed by the Ministry of Land, Infrastructure and Transport due to the collapse of the underground parking lot at an apartment complex in Geomdan, Incheon. NICE Credit Rating and Korea Credit Rating downgraded GS Construction’s short-term credit rating from ‘A2+’ to ‘A2’.

Junseong Kwon, a senior researcher at NICE Credit Rating, explained the downgrade, saying, "The collapse incident damaged the image of the housing brand ‘Xi’," and "Recently, unsold units have appeared mainly in some regional projects, and conflicts over construction costs with maintenance project associations have led to contract terminations." This is expected to negatively impact GS Construction’s conditions for issuing corporate bonds. GS Construction is not a subsidiary of GS Group as the group does not hold shares, meaning it is excluded from subsidiary support effects.

Daewoo Construction began preparing for corporate bond issuance in December last year, aiming to issue bonds this month, but has yet to decide on the timing following Taeyoung Construction’s workout. A Daewoo Construction representative said, "We are reviewing corporate bond issuance," but added, "Market conditions are not favorable." He continued, "Like last year when we issued Islamic bonds, we have other funding routes and sufficient cash reserves, so issuing corporate bonds is not urgently needed."

There are concerns that rashly attempting to issue corporate bonds could cause more harm than good. A representative from Company C said, "Although construction companies that issued bonds last month succeeded in demand forecasting, they were subjected to interest rates higher than the individual market average, which diminished the meaning of the public offering," adding, "Even companies supported by group affiliates face these circumstances, so companies that must rely solely on construction business are cautious, fearing that failure in demand forecasting would lead to worse evaluations in the market."

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