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Massive sales credit poses risks to local constructors

The accumulative sales credit of nine major construction firms in Korea exceeded 25 trillion won ($21 billion) this year, posing potential credit risk to the companies, the financial industry said Tuesday. 


According to the Financial Supervisory Service, the total accumulative sales credit of the nine large construction firms recorded 26.7 trillion won as of the third quarter.

Hyundai Engineering and Construction topped the nine companies with 6.1 trillion won, followed by GS Engineering and Construction with 4.86 trillion won and Daewoo Engineering and Construction with about 3.5 trillion won.

The sales credit included the account receivables and amount that the companies have not claimed yet due to construction delays.

As of the third quarter, the sales credit accounted for 35 percent of the annual sales of the firms on average, the data added.

In general, credit risk is raised when the sales credit makes up over 30 percent of a company’s annual sales amount, industry insiders said.

Hanhwa Engineering and Construction showed the highest risk at 66 percent, indicating that the construction account receivables of the company exceeded half of its annual sales.

The credit rating agencies projected the future credit ratings to fall.

“(The agency) forecasted that the construction industry’s credit rating would be negative next year. The uncertainty persists as sales credit has been massively accumulated,” said NICE Investors Service researcher Seo Chang-yong.

The agency is monitoring whether the construction firms are thoroughly supervising construction and how much the companies are facing difficulties in financing, he added.

By Lee Hyun-jeong (