The financial woes gripping Woongjin Group are expected to send ripples through Korea as yet another seemingly sturdy enterprise appears to be teetering on the cusp of bankruptcy.

“It was a shock, a pure shock. I could not believe it because from all I’ve seen in ads, commercials and the news, Woongjin seemed to me as invincible. The company was literally a legend or at least one of the most fantastic success stories I know because it was built by a man who started out an ordinary salaried worker like me,” Kim Woo-jin, a 42-year-old employee at a mid-sized textile firm, told The Korea Herald.

Kim’s remarks reflected the sentiment that many Koreans must feel toward Woongjin’s troubles.

On Wednesday, Woongjin Group founder Yoon Seok-keum announced the company’s decision to request court receivership for the group’s holding company and construction arm Kukdong Construction.

It marked the first real crisis the company has faced since Yoon successfully built Woongjin Group from scratch some 30 years ago. Woongjin had been operating a number of profitable affiliates under its wing before it acquired Kukdong Construction in 2007 for 660 billion won ($591 million). Since then, Woongjin has been forced to pour money into the underperforming construction company.

The heavy loans that Woongjin took out in the process are expected to pose another problem given the impact it could have on the financial sector, industry watchers said.

In total, Woongjin has some 4.3 trillion won of outstanding loans. They include 3.3 trillion won of credit loans, of which 2.1 trillion won was extended from the nation’s top banks including Woori Bank, Shinhan Bank, Hana Bank and the Korea Development Bank.

If and when the court accepts Woongjin’s request for court receivership, all outstanding debt will be classified as bad loans, forcing the banks to set aside more reserves.

One other aspect of Woongjin’s predicament is that it highlights the plight of local industrial groups that purchased construction companies, hoping them to turn them around.

LIG Group, for one, is struggling to keep afloat the construction firm it acquired. Hyosung Group and Taihan Electric Wire Group are in the same boat, as both also are struggling with the builders they purchased amid a real estate downturn. Several other construction companies such as Ssangyong, Byucksan and Poonglim are in trouble and awaiting buyers.

“Woongjin should have known better than to have acquired Kukdong when it did. It should have foreseen the slump we’re seeing in the property markets,” said one industry watcher who declined to be identified.

If the court accepts Woongjin’s request, it would mark the second time that Kukdong was placed under such management.

Share prices of Woongjin Holdings ended at 3,600 won on Thursday, unchanged from the previous day.

By Kim Ji-hyun  (jemmie@heraldcorp.com)