Taeyoung Construction Engages in Daily Tug-of-War with Financial Companies Amid PF Crisis... On Edge Over Repayment and Extension

Construction Site Credit Loan of 40 Billion Won Matures... Borrowing Maturity Continues
'Financial Companies VS Taeyoung Construction' Under Repayment Pressure, Both Sides Brace for Worst
If Extension or Repayment Fails, Court Receivership and Workout Become Realistic Options

Taeyoung Construction is engaged in a tense tug-of-war with its creditors over the extension and repayment of maturing borrowings. The maturity schedule for borrowings is lined up one after another, and financial institutions that lent money to Taeyoung are showing a negative stance on loan extensions. In this process, friction between Taeyoung Construction and the creditors has raised rumors of workout (corporate rehabilitation) and court receivership applications. If repayment of borrowings fails without an extension agreement, trillions of won in borrowings and contingent liabilities will simultaneously face cross default.

On the 18th, at the Taeyoung Construction headquarters in Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

Intense Focus on Maturing Loans ‘Extension and Repayment’... Will ‘Too Big to Fail’ Work?

According to the financial sector on the 18th, Taeyoung Construction faces the maturity of borrowings amounting to 40 billion won borrowed from creditors including securities firms on this day. It is known to be the principal and interest repayment date for a credit loan related to a PF (Project Financing) site constructed by Taeyoung Construction. An executive of a financial company belonging to the creditor group said in a phone call last week, "The loan maturity related to a certain project site constructed by Taeyoung Construction has come due, and we are continuing negotiations with the company (for extension or repayment)."

Yoon Se-young, Founding Chairman of Taeyoung Group

According to industry sources, the financial companies that lent the loan are demanding repayment of principal and interest, but Taeyoung Construction has reportedly been resisting repayment and engaging in a power struggle with the creditors. An industry insider evaluated the situation, saying, "If the loan is not extended, all other borrowings including PF loans could face default, so the creditors seem to be in a difficult position where they cannot do either."

If Taeyoung Construction continues to insist on non-repayment, the creditors are highly likely to reluctantly decide to extend the loan. A financial company official said, "If a large construction company like Taeyoung Construction goes bankrupt, the market impact would be enormous," adding, "They might extend the loan for about a month and then next year, when the Corporate Restructuring Promotion Act (CRPA) is reactivated, Taeyoung might apply for a workout."

Last Friday (the 15th), it was reported that Taeyoung Construction repaid about 15 billion won in borrowings related to an urban development project constructing apartments on a military base site in Bucheon, Gyeonggi Province, to the creditors. An industry source said, "Since financial companies requested repayment and due to the structural difficulty of extending maturity because multiple construction companies participate in the project consortium, repayment was made."

Even if the maturity extension of the loan for the project site maturing on this day is achieved, other borrowings’ maturities are lined up, drawing market attention to whether repayment or extension will occur. On the 22nd, borrowings related to the ‘Eco City’ development project on a military base site in Jeonju, Jeollabuk-do, will mature. On the 29th, borrowings for the Seongbuk Mansion reconstruction project in Wolgye-dong, Nowon-gu, Seoul, are also due. In the first quarter of next year, borrowings for the Gwangmyeong station area development project in Gyeonggi Province, the Samgye-dong urban development project in Gimhae, Gyeongsangnam-do, and the officetel development project in Uijeongbu, Gyeonggi Province, will mature.

A financial company official explained, "With ongoing talks of PF restructuring from financial authorities, creditors have become more inclined to demand repayment rather than extend loans to Taeyoung Construction, which has a high risk of insolvency," adding, "As rumors of workout and court receivership continue, efforts to reduce loan exposure are ongoing."

PF Contingent Liabilities Also on the Brink

Contingent liabilities from PF exceeding 7 trillion won are also identified as a risk factor. Taeyoung Construction is facing difficulties in short-term funding such as CP (Commercial Paper), making it harder to refinance PF securitization bonds, which are usually rolled over every three months. An asset management company official said, "Concerns over Taeyoung Construction’s default are growing, reducing demand for PF securitization bonds," and added, "The burden on financial companies that agreed to purchase or assume debt of securitization bonds that fail to refinance, as well as on Taeyoung Construction, is increasing."

As of the 1st, Taeyoung Construction’s consolidated PF guarantee balance reached 7.4 trillion won. Excluding about 1.9 trillion won of unused credit limits that Taeyoung Construction has not utilized, the guarantee balance amounts to about 5.5 trillion won. This is about a 25% increase from the 4.5 trillion won guarantee balance at the end of September. A financial company official analyzed, "Due to the real estate market downturn, the number of unstarted projects has increased, and even in ongoing projects, loans have increased due to decreased pre-sale proceeds and increased construction costs, leading to an increase in PF guarantee scale."

The volume of debt assumption for distressed PF projects is also rapidly increasing. In the second half of this year, Taeyoung Construction acquired securitization bonds worth 318.1 billion won from PF securitization companies. This is 7 to 8 times the acquisition amount of 43.2 billion won in the first half. A credit rating agency official said, "As short-term funding becomes difficult, Taeyoung Construction is increasingly purchasing some of the matured securitization bonds directly," and predicted, "As investors avoid investing in Taeyoung Construction-related securitization bonds, the burden of acquisition will continue to increase."

Taeyoung Construction is continuously trying to dispel crisis rumors. A Taeyoung Construction official said, "Following Financial Supervisory Service Governor Lee Bok-hyun’s recent remarks at a meeting that ‘restructuring of distressed real estate PF projects is inevitable,’ rumors of workout and court receivership applications seem to have spread," adding, "Major PF projects are progressing stably, and about half of the contingent liabilities are loans evaluated as highly stable." The official also stated, "We are improving our finances independently, centered on the holding company TY Holdings," and dismissed the widespread bankruptcy rumors as untrue.