Hanshin Rating "Doosan Construction, Credit Rating Downgrade Review for Warrants Registered"

Doosan Construction Faces 89% of Liquidity Loans Due Within One Year
Increased Financial Burden on Parent Company Doosan Heavy Industries Raises Uncertainty

[Asia Economy Reporter Minji Lee] Korea Ratings (Korea Credit Rating, KCR) on the 26th registered Doosan Construction's 94th unsecured bonds with warrants credit rating on the Watchlist for downgrade from the previous BB-, Stable to BB-, Under Review through a timely evaluation.

The main reason for placing the credit rating under review for downgrade was cited as the increased financial burden of its parent company, Doosan Heavy Industries & Construction. Due to weakened access to capital markets, uncertainty regarding the possibility of support in case of emergency has expanded, necessitating monitoring.

KCR explained, "The company's credit rating reflects the possibility of support from the group in case of emergency (1 Notch Uplift)," and "As Doosan Heavy Industries & Construction, which holds 100% of the company's shares, has been placed on the Watchlist for downgrade, uncertainty about the possibility of support in case of emergency has increased."

Doosan Heavy Industries & Construction is facing heightened liquidity pressure amid ongoing excessive financial burdens. As of the end of last year, Doosan Heavy Industries & Construction's standalone borrowings amounted to 4.9 trillion KRW, and with the trend of shortening debt maturities, liquidity pressure has become very high. The amount of corporate bonds maturing or callable within this year is about 1.2 trillion KRW. Considering limited collateral capacity, deteriorated external creditworthiness, and increased volatility in the global financial markets recently, it is expected to be difficult to respond independently.

Additionally, Doosan Construction's debt burden is also increasing. The company's standalone borrowings amount to 725.7 billion KRW. Although the borrowing scale decreased somewhat through a paid-in capital increase in 2019, of the 658.1 billion KRW borrowings excluding lease liabilities, 585.1 billion KRW, or 88.9% of total borrowings, are short-term borrowings maturing within one year. Project financing (PF) borrowings with joint guarantees stood at 152.7 billion KRW as of the end of last year, indicating a heavy financial burden. Furthermore, over the past two years, the company has received audit opinions indicating significant uncertainties that raise substantial doubt about its ability to continue as a going concern.

KCR stated, "Depending on the success or failure of the company's liquidity response plan and management improvement measures, the audit risk may increase," and pointed out, "As of the end of 2019, the company's current assets were 815.1 billion KRW, while current liabilities were 1.5982 trillion KRW, with current liabilities significantly exceeding current assets," adding, "The auditor has explicitly stated that there are significant uncertainties that raise substantial doubt about the company's ability to continue as a going concern."

Finally, KCR added, "We will monitor changes in Doosan Heavy Industries & Construction's credit rating, progress in the company's financial structure improvement plans, refinancing of maturing borrowings, and liquidity responses, and reflect these in the company's credit rating."