Limkwang Engineering & Construction’s application for court receivership Thursday sent jitters across similar-sized builders in a liquidity crisis due to excessive project financing amid a prolonged property market slump.

A reduction in public construction orders and the inability to redeem project financing loans have pushed scores of construction companies to the verge of bankruptcy.

Pressed by surety obligations on project financing loans and a lack of new orders, Limkwang, ranked 40th in the country for building capability, went bankrupt, as did Pumyang Construction last month.

The builder, which has an 84-year history, will be barred from selling its assets or repaying debts without court permission. Creditors to Limkwang will also be prohibited from provisional seizure, provisional disposition of the builder’s assets or forcible execution.

Pumyang, ranked 58th in the annual industrial evaluation, applied for receivership as overseas project financing dried up due to the global financial crisis.

Chinhung International Inc., currently under a debt workout program, is straddled with liabilities worth nearly 1 trillion won ($880 million). Creditors to Chinhung are considering asking its parent company Hyosung for a capital injection of over 100 billion won.

Small and medium-sized builders face more hardship next year as the government plans to expand a system under which bidders presenting the lowest costs win construction orders. The system, which currently applies to orders worth over 30 billion won, will cover those over 10 billion won ― about three quarters of all public construction orders.

Court receivership seems inevitable for builders that took out massive project financing loans, mostly for apartment construction.

Limkwang has been at odds with its creditor Korea Development Bank over a payment guarantee of some 200 billion won in project financing loans taken out to develop an apartment complex in Hwaseong, Gyeonggi Province.

Falling operating profits led to a drastic reduction in cash holdings, forcing the builder to sell its office building in July.

Limkwang’s debts amounted to 922 billion won as of late October.

“Limkwang set about housing projects to make up for the lack of public orders, but many of the apartments were left unsold, causing it to collapse,” an official at the Construction Association of Korea.

The company started in 1927 as the first builder to be founded by a Korean under Japan’s colonial rule, and changed its name to Limkwang in 1957.

It has conducted mostly civil engineering projects such as roads, harbors and subways, and has an apartment brand.

By Kim So-hyun (sophie@heraldcorp.com)