Joined Hands at a Collapsed Site... HUG Also Says "Never Seen This Before" [Construction Crisis Report]

Revived Construction Site
Bankrupt Site Resumes Work... First Case Led by Subcontractors
Major Creditor NH Nonghyup Bank Concedes Recovery Priority
Support from Local Governments and Political Community... Negotiations Made Possible
HUG Changes Stance... Guarantee Institution Agrees to Resume Construction
Jeil Construction Prepares Self-Rescue Measures... CEO Injects Personal Funds

"Let's band together as partner companies and finish the construction."

At the 'O2 Grande' apartment construction site in Iksan, North Jeolla Province, dump trucks have started moving again. Although the main contractor, Jeil Construction, has already gone bankrupt, subcontractors have resumed applying cement. These companies have formed a creditors' council and are making every effort to complete the construction, knowing that only by finishing the project can they recover the sales proceeds.

It is extremely rare for subcontractors to voluntarily continue construction after the main contractor has gone bankrupt. Jeil Construction, which has been declared bankrupt, as well as the main creditor NH Nonghyup Bank and the buyers, have all decided to join forces.

"We won't give up. We will build"... Voluntary solidarity among over 150 partner companies

On the 8th, when the heatwave continued day after day, workers were continuing their work at a construction site. Photo by Jo Yongjun

Jeil Construction, a North Jeolla-based builder known for its 'O2 Grande' apartment brand, was declared bankrupt in December last year after failing to cover a 700 million won promissory note. Typically, when a company goes bankrupt, subcontractors give up on recovering construction payments, as partner companies are pushed to the back of the line for debt repayment and it is virtually impossible to get paid. However, more than 150 partner companies have banded together to continue the construction.

Construction resumed at two sites in February and this month. At Hamyeol-eup's 'Buk Iksan O2 Grande The One' (259 units), work restarted relatively early because there were no financial institution claims or Housing and Urban Guarantee Corporation (HUG) guarantees. At Namjung-dong's 'O2 Grande New First' (298 units), construction resumed after Iksan City approved a revised construction plan.

Yoo Seunghyuk, head of the Jeil Construction Creditors' Council and CEO of Seungil General Construction Materials, said, "In my 20 years in the industry, I have never seen partner companies push to continue construction to the end like this," adding, "Everyone is holding on because they know that only by finishing the project can the sales proceeds be recovered and used to pay off debts." Yoo also said, "Some companies are surviving through collateral or credit loans, and we are continuing negotiations with Jeil Construction to request additional financial support."

Major creditor NH Nonghyup Bank makes significant concessions... Local governments also step in

Even though construction has resumed, the financial situation has not been resolved. At the Namjung-dong site, which recently received a construction start order from HUG, the remaining construction costs alone amount to about 23 billion won. Even if the sixth interim payment, which has not yet been disbursed, comes in, only 5.2 billion won will actually be available before completion. Yoo said, "We have to finish the rest of the construction with only about 20% of the necessary funds," and added, "Partner companies are barely holding on by relying on loans and other self-help measures."

This time, the buyers stepped up. On July 15 and 16, as the sixth interim payment loan for the Namjung-dong site was about to be executed, supplementary documentation was needed. For the buyers, this meant the inconvenience of having to visit the site in person to match the revised schedule. However, over 200 buyers visited the site in person over the two-day adjustment period to submit the necessary documents.

The creditors' council also joined in. During the process of changing the loan documents, there were concerns that the interest-free benefit could be lost due to construction delays. However, after discussions among NH Nonghyup Bank, the partner company creditors' council, and Jeil Construction, it was decided to maintain the existing conditions. The interest-free benefit will also apply to the interim payments corresponding to the extended construction period. Practical procedures for the loan execution are currently underway.

NH Nonghyup Bank made a bold decision by readjusting the conditions for recovering the project financing (PF) loans. Of the approximately 25 billion won in PF claims at the Namjung-dong site, only about 15 billion won will be recovered first. The remaining 10 billion won will be recovered after the partner companies receive about 5.6 billion won, which is 70% of their unpaid claims, and then from the remaining funds.

NH Nonghyup Bank is the largest creditor, holding more than half of Jeil Construction's total claims of 100 billion won. Since NH Nonghyup Bank effectively has decision-making power in key matters such as the review of the rehabilitation plan, this change in the order of recovery has become a decisive turning point for the partner companies. NH Nonghyup Bank is also said to have decided to cooperate, judging that "if construction is halted, we will not be able to recover our funds either."

The local political community and government also played their part. Yoo explained, "NH Nonghyup Bank initially refused to negotiate, but North Jeolla Special Self-Governing Province and Iksan City stepped in to bring everyone to the table. Without their support, negotiations would never have even started."

HUG also lent its support by agreeing to the resumption of construction at Namjung-dong. Since Jeil Construction had received a pre-sale guarantee for this project, HUG's stance was key to restarting construction after the contractor's bankruptcy. HUG agreed to let the partner companies take the lead in continuing the construction and stated that it would only assume guarantee and management responsibility for the work carried out from this point onward. Yoo said, "HUG staff also said it was the first time they had seen partner companies step up to complete a bankrupt site," and added, "Initially, we thought the project would be refunded, but when construction actually resumed, HUG changed its stance and decided to cooperate as much as possible."

Jeil Construction: "We will not avoid our responsibilities"

Jeil Construction has also come up with some self-rescue measures. In May, Jeil Construction and its affiliate Ever General Construction sold about 10 unsold units at the Hamyeol-eup site to raise funds for construction. New sales are still ongoing. Yoo said, "Jeil Construction's active implementation of self-help measures and new sales has been a great help, but the remaining funds are still far from sufficient to complete the project."

Jeil Construction CEO Yoon Yeoungwoong personally covered about 3 billion won in site operating expenses and about 6 billion won in employee wages and severance payments out of his own pocket. In this crisis, the CEO personally injected funds to address urgent needs. Yoo said, "Jeil Construction also took responsibility for resolving the severance pay issue, which had even led to criminal complaints," and explained, "It's not about whether someone did well or not, but the important thing is that everyone came together."

Jeil Construction is currently considering a full-scale sale of internal assets in response to the court's request for a rehabilitation plan. Once the process of confirming all claims is completed this month, the rehabilitation plan will be submitted next month, and whether it is approved or not will likely be decided in September or October. Partner companies are also holding weekly meetings with Jeil Construction to ensure that a self-rescue plan acceptable to the court can be prepared.

Yoo said, "Jeil Construction bears the primary responsibility for this situation, but we don't have the luxury of wasting time blaming anyone right now," and added, "If we don't hold on, the site will come to a halt, so we're continuing the construction day by day with the determination to see it through to the end."

Order of Articles in the 'Construction Crisis Report' Series

<1-1> Construction Sites at a Standstill, Day Laborers' Lives Collapsing
<1-2> "Three or Four More Bankruptcies"... Mid-sized Builders on the Chopping Block
<2-1> What Seemed Like a 'Lifeline' Turned Out to Be a 'Trap': PF
<2-2> Easing Multi-homeowner Regulations, the Key to Reviving Regional Real Estate
<3-1> "Every Day Is Nerve-wracking": Shaken Subcontractors and Downstream Industries
<3-2> Even Major Companies Couldn't Avoid Wage Arrears
<3-3> LH and Local Governments Also Face Wage Arrears
<3-4> Even the President Stepped In... Urgent Need for Vertical Structure Reform
<3-5> This Company Survived Without Illegal Re-subcontracting
<3-6> Joined Hands at a Collapsed Site
<4-1> Foreign Construction Workers Encroaching on Domestic Jobs
<4-2> Not 'Regulating Foreigners' But 'Protecting Locals'
<4-3> The Fundamental Cause of Deteriorating Profitability: Frequent Rework