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Low margin on overseas deals adds to woes of builders’ balance sheets
By Korea HeraldPublished : April 11, 2013 - 20:06
GS Engineering & Construction, the nation’s No. 4 builder, recorded a huge deficit in the first quarter, raising further concerns on the future of the struggling construction industry.
The first quarterly operating loss of GS E&C came to 535.5 billion won ($474 million), officials said Wednesday. Also, the yearly loss is estimated to reach 798.8 billion won, with 684.4 billion won during the first half of the year.
The company, however, said that its profit level will recover by the end of the year.
“We have secured some 1.5 trillion won by issuing corporate bonds and will not face any liquidity problems,” said a company official.
GS E&C’s loss is largely attributable to the increasingly low-margin overseas construction deals which have been rampant since the 2009 global financial crisis. Local builders, in a struggle to survive in the depreciating construction market, competitively lowered their bidding prices, which later triggered a chain of operating losses, officials explained.
Concerns elevated further as the local construction industry has recently been hit by negative factors such as the bankruptcy of the Yongsan redevelopment project.
The Yongsan investor list includes 17 construction-related firms such as GS E&C, as well as other key builders, POSCO Engineering & Construction, Doosan Engineering & Construction and SK Engineering & Construction.
As the state-run rail operator KORAIL decided to leave the development project, the investors are currently faced with the worst-case financial scenario, which may develop into a massive series of lawsuits.
The International Contractors Association of Korea, however, predicted that the overseas construction deals will improve in the coming years.
The country’s total current overseas construction deals amounted to $13.2 billion as of last week, up by 58 percent from the same period last year. The number of deals also rose by 34 percent from 151 to 203, according to the ICAK.
“The rising number of deals on plants and infrastructure is expected to boost the long-stagnant overseas market,” said an official.
By Bae Hyun-jung (tellme@heraldcorp.com)
The first quarterly operating loss of GS E&C came to 535.5 billion won ($474 million), officials said Wednesday. Also, the yearly loss is estimated to reach 798.8 billion won, with 684.4 billion won during the first half of the year.
The company, however, said that its profit level will recover by the end of the year.
“We have secured some 1.5 trillion won by issuing corporate bonds and will not face any liquidity problems,” said a company official.
GS E&C’s loss is largely attributable to the increasingly low-margin overseas construction deals which have been rampant since the 2009 global financial crisis. Local builders, in a struggle to survive in the depreciating construction market, competitively lowered their bidding prices, which later triggered a chain of operating losses, officials explained.
Concerns elevated further as the local construction industry has recently been hit by negative factors such as the bankruptcy of the Yongsan redevelopment project.
The Yongsan investor list includes 17 construction-related firms such as GS E&C, as well as other key builders, POSCO Engineering & Construction, Doosan Engineering & Construction and SK Engineering & Construction.
As the state-run rail operator KORAIL decided to leave the development project, the investors are currently faced with the worst-case financial scenario, which may develop into a massive series of lawsuits.
The International Contractors Association of Korea, however, predicted that the overseas construction deals will improve in the coming years.
The country’s total current overseas construction deals amounted to $13.2 billion as of last week, up by 58 percent from the same period last year. The number of deals also rose by 34 percent from 151 to 203, according to the ICAK.
“The rising number of deals on plants and infrastructure is expected to boost the long-stagnant overseas market,” said an official.
By Bae Hyun-jung (tellme@heraldcorp.com)
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Articles by Korea Herald
