Cloudy Credit Outlook for Construction Next Year... Full-Scale Debt Management [Real Estate AtoZ]

Negative Credit Outlook for 2026
Widening Gap Between Metropolitan and Regional Areas, Tighter Lending Regulations
Focus Shifts to Stability Over Expansion

Following this year, there are projections that the construction industry will find it difficult to escape from the slump next year as well. As lending regulations tighten, the pre-sale market is contracting, which is expected to put pressure on construction companies’ performance next year and negatively impact their credit outlook. Major construction companies are proactively working to improve their debt ratios or appointing finance experts as company heads to manage risks.

Cloudy Credit Outlook for the Construction Industry in 2026

According to the credit rating industry on December 27, Korea Ratings recently forecasted a "negative" credit outlook for the construction sector next year. The agency predicted that construction firms exposed to risks such as unsold units, working capital burdens, and safety accidents will face increasing downward pressure on their credit ratings.

NICE Investors Service and Korea Investors Service also published similar reports. NICE Investors Service projected a "deterioration" in the construction sector's performance next year, with a "negative" direction for credit ratings, and Korea Investors Service also forecasted a "negative" outlook. This year, credit rating agencies also maintained a "negative" view on credit ratings, citing potential sales declines due to sluggish pre-sales or construction starts. Concerns were also raised about the potential realization of project financing (PF) contingent liability risks.

It is expected that construction companies will face even greater funding burdens next year. The polarization of the real estate market between Seoul and regional areas is expected to become more pronounced, potentially leading to increased issues with unsold units in regional markets. The "one smart home" trend has widened the demand gap between the metropolitan area and the provinces, increasing credit risks due to unsold units at regional sites and the recognition of impairment losses on accounts receivable from reduced recoverability. In addition, the government's tightening of lending regulations, starting with the June 27 measures, has negatively affected the pre-sale market.

Construction Companies Begin Debt Reduction... Subsidiary Sales Also Underway

With funding difficulties expected to intensify next year, major construction companies are working to reduce their debt ratios to ease financial burdens. According to the Financial Supervisory Service’s electronic disclosure system, GS Engineering & Construction announced on December 17 that it had decided to issue 200 billion won worth of debt securities recognized as equity capital.

The purpose of the fundraising is to repay debt, and the issuance of hybrid securities recognized as equity is seen as an effort to lower the debt ratio. As of the third quarter of this year, GS Engineering & Construction’s debt ratio stood at 239.89%, but with this fundraising decision, it is expected to improve to around 227%.

Earlier, in November, Lotte Engineering & Construction also decided to issue 350 billion won worth of debt securities recognized as equity capital. The purpose is also to repay debt, and the debt ratio, which was 214.32% as of the third quarter of this year, is expected to improve to the 170% range due to the increase in equity capital.

Some construction companies are also seeking to secure financial soundness by selling non-core subsidiaries. SK Ecoplant signed a stock purchase agreement (SPA) with global private equity firm Kohlberg Kravis Roberts (KKR) to sell 100% of its shares in three environmental subsidiaries: Renewus, Renewon, and Renew Energy Chungbuk. The sale is valued at approximately 1.78 trillion won. SK Ecoplant expects the share sale to improve its financial structure and strengthen its semiconductor-focused business portfolio. As of the end of September this year, its debt ratio was recorded at 218.62%.

There are also cases of appointing finance experts as company heads to prepare for liquidity risks. Hanwha Construction Division appointed Kim Wooseok, head of finance at Hanwha’s Strategy Division, as its new CEO. He is known as a hands-on leader with over 30 years of experience in the group, having built expertise in management and finance.

An industry official commented, "After the PF crisis in the past, there is a prevailing perception that if debt issues erupt, it could be fatal. Rather than pushing forward with risky projects, there is a growing emphasis on stability and financial soundness."