Daewoo Engineering & Construction (Daewoo E&C) saddled with 1.8 trillion won ($1.5 billion) in short-term loans whose maturity is coming back within a year is feared to face a liquidity crisis if the real economic downturn caused by the COVID-19 is prolonged, the inews24 reported on Sept. 21.
According to the Financial Supervisory Service's electronic disclosure system on Sept. 21, Daewoo Engineering & Construction's short-term loans totaled 1.856 trillion won in the second quarter of this year, up 31.3 percent from 1.413 trillion won at the end of last year.
This increased the company’s dependence on short-term borrowings by 14.87 percentage points from 63.14 percent to 78.01 percent.
Interest costs from increased borrowing are also being prohibitively spent. In the first half of this year alone, the company spent a total of 50 billion won ($42.3 million) on interest expenses. The interest coverage ratio fell from 5.95 to 4.01.
The interest coverage ratio is the value divided by interest costs in operating profit, which means that the smaller the figure, the worse the financial structure is.
In addition, Daewoo E&C has contingent liabilities such as 401.8 billion won in debt guarantee, 664.9 billion won in joint guarantee for loans for cooperative projects, and 826.5 billion won in litigation pending in the lawsuit.
Daewoo E&C is tapping the corporate bond market to secure liquidity, but it is in a difficult situation. It received only 10 billion won in purchase orders in a demand forecast ahead of the issuance of 100 billion won worth of corporate bonds.
The remaining amount not sold in the market will be taken by Samsung Securities for 41 billion won, the organizer, and the Korea Development Bank for 49 billion won, which participated as the acquisition team. Daewoo E&C secured only half of the 100 billion won corporate bond demand forecast in July.
The reason behind Daewoo E&C's difficulties in predicting corporate bond demand is that the prolonged COVID-19 is expected to weaken Daewoo's fundamentals. Moreover, the analysis that the government's continued real estate regulations will have an adverse effect on the construction industry seems to have played a part.
