Shinpyung 3 Agencies Downgrade Taeyoung Construction to 'CCC'... Possibility of Default

Reason for Workout Initiation Application on 28th
Most Cases 'Downward Review'... Additional Monitoring Needed

On the 28th, Taeyoung Construction, which is experiencing a liquidity crisis due to real estate project financing (PF), applied for a workout (corporate restructuring). The entrance of Taeyoung Construction headquarters in Yeongdeungpo-gu, Seoul. Photo by Jinhyung Kang aymsdream@

On the morning of the 28th, the three domestic credit rating agencies downgraded the unsecured bond credit rating of Taeyoung Construction, which filed for corporate restructuring (workout), to 'CCC,' indicating a possibility of default. The unsecured bond credit rating directly reflects Taeyoung Construction's standalone creditworthiness.

NICE Credit Rating (NICE) downgraded Taeyoung Construction's unsecured bond credit rating from ‘A-/Under Review for Downgrade’ to ‘CCC/Under Review for Downgrade’ on the same day. The company's commercial paper (CP) credit rating was also adjusted from ‘A2-/Under Review for Downgrade’ to ‘C/Under Review for Downgrade.’ The term "under review for downgrade" means that further adjustments may be possible in the future. A CCC credit rating implies a likelihood of default.

Korea Ratings also adjusted Taeyoung Construction's unsecured bond rating from ‘A-/Under Review for Downgrade’ to ‘CCC/Under Review for Downgrade,’ and its commercial paper rating from ‘A2-/Under Review for Downgrade’ to ‘C/Under Review for Downgrade.’ Korea Investors Service downgraded Taeyoung Construction's unsecured bond credit rating from ‘A-/Negative’ to ‘CCC/Negative Review’ and lowered the commercial paper credit rating from ‘A2-’ to ‘C.’

Taeyoung Construction, which faced a liquidity crisis triggered by real estate project financing (PF), filed for workout with financial authorities on the morning of the same day. The main creditor bank, Korea Development Bank, plans to form a financial creditors' council to decide whether to commence the workout. Since the major lenders for each PF project differ, close discussions with the creditor group are also necessary.

As of the end of September 2023, Taeyoung Construction's consolidated net borrowings reached 1.8176 trillion KRW, an increase of 229.9 billion KRW compared to the end of the previous year. This was due to increased direct purchases as refinancing conditions for project financing (PF) securitized bonds deteriorated from the second half of this year. When adding the contingent liabilities of development project PFs held by the consolidated entity to the PF borrowings, the total PF-related borrowings rise to about 2.9 trillion KRW. Korea Investors Service estimated that excluding projects with favorable sales rates, the PF contingent liabilities with a high likelihood of risk realization amount to approximately 1 trillion KRW. Of this, about 190 billion KRW is scheduled to mature by February next year.

Korea Ratings stated, "During the debt restructuring process, principal and interest impairments are expected due to principal and interest reductions, repayment deferrals, and equity conversions," adding, "The commencement, progress, and level of creditor impairment in the workout will be reflected in the credit rating going forward." NICE said, "We plan to strengthen monitoring of financial institutions with significant exposure to Taeyoung Construction-related real estate development projects," and "We will also conduct thorough inspections of the PF securitization market, short-term funding market trends, and each financial institution's liquidity response capabilities." Korea Investors Service commented, "This downgrade reflects the workout application filed on the 28th," and "We will monitor subsequent developments such as the creditors' council proceedings."