The 'Heuksujeo Myth' of Dongdaemun Merchants... '83 Billion Won Debt' Held Them Back in Just One Day

A Rapidly Growing Mid-Sized Construction Company Suddenly Files for Rehabilitation
83 Billion KRW Debt Incurred Due to One-Day Delay in Responsible Completion
Industry Faces 'Chain Bankruptcies'... "Urgent Need to Implement Responsible Completion Reform Measures"

An Jae-hong, chairman of Ankang Group, is regarded as the protagonist of the 'dirt spoon myth' in the mid-sized construction industry. He is a self-made figure who started from the bottom and rose to the position of chairman leading a comprehensive real estate group. Ankang Group oversees Ankang Construction as well as developers, rental companies, and facility management firms.

Chairman An first stepped into the real estate industry in 2003 as a sales representative for a sales agency after selling clothes at Dongdaemun Market. He gained recognition for his outstanding sales skills and made a mark in the industry. He also started his own business. Beginning with the establishment of a sales marketing company in 2006, he founded Ankang Development in 2011 to officially start project development. In 2015, he entered the general construction business through Ankang Construction. Ankang Construction's ranking in the construction performance evaluation rose continuously for six years from 689th in 2018 to 116th last year. Chairman An also serves as the CEO of Ankang Construction.

The myth of Chairman An, who seemed only a matter of time away from entering the top 100 in the construction performance rankings, came to a halt when Ankang Construction suddenly filed for rehabilitation proceedings. As of 2023, the company had sales of 230 billion KRW and a debt ratio of 157%. Since the financial soundness did not appear problematic at first glance, the news was even more unexpected.

The failure to fulfill the 'responsible completion obligation' caught up with the thriving Ankang Construction. Participating as the contractor for the Ansan logistics center site, Ankang Construction assumed all the developer's debts because it missed the responsible completion deadline by just one day. The total amount was 83 billion KRW. There were also circumstances that could be considered unfair. Although the construction period was met, negotiations with Ansan City were prolonged. Additionally, the approval was delayed due to overlapping public office holidays. Having violated the regulations, Ankang Construction suddenly faced a liquidity crisis.

The responsible completion obligation is a system where the contractor guarantees completion within the deadline on behalf of a developer with low creditworthiness when raising project financing (PF) loans. If the deadline is missed even by one day, the contractor must repay all the debts on behalf of the developer. To make matters worse, around the same time, unpaid construction costs due to unsold units after completion occurred massively at projects such as terrace houses in Gwangju, Gyeonggi Province, and the Ansan knowledge industry center. Joint guarantees on interim payments by the developer led to provisional seizures by financial institutions. Judging that normal business operations were no longer possible, CEO An ultimately turned to the court. Ankang Construction officials explained, "Despite the company's excellent construction capabilities, liquidity problems eventually forced us to apply for rehabilitation proceedings."

The responsible completion obligation is identified as one of the causes of 'chain bankruptcies' in the construction industry. Due to the industry downturn, the number of insolvent developers unable to repay loans is increasing, and construction delays caused by rising costs and economic recession have led many contractors to bear heavy debts. Although exact statistics are unavailable, it is said that the debt scale of insolvent developers passed on due to failure to fulfill responsible completion obligations, like Ankang Construction in the past two years, amounts to about 1 trillion KRW. For individual mid-sized construction companies, this could wipe out several years' worth of profits. They inevitably fall into liquidity crises.

The government has been promoting 'responsible completion improvement measures' since last year but delayed the announcement and recently revealed the outline through the 'Regional Construction Economy Supplementary Plan.' They are considering expanding the reasons for extending responsible completion and differentiating the debt assumption ratio according to the delay period. Instead of automatically assuming 100% of the debt if the completion deadline is missed, the plan aims to ease the burden so that only a portion of the debt is assumed depending on the length of the delay. The improvement measures are expected to be applied next month. A representative of a mid-sized construction company said, "Since the direction has already been set, the improvement measures should be finalized and applied as soon as possible. We must prevent more cases where sound construction companies suddenly face rehabilitation, bankruptcy, or closure."