Gov't won't give Taeyoung public funds

The Korean government will not use public funds to finance the ailing Taeyoung Engineering and Construction. It urged the company to implement self-rescue plans and gain creditors' trust in order to resolve its liquidity crisis.

A flag with the logo of Taeyoung Engineering and Construction at the company's headquarters in Yeouido, western Seoul, on Monday. [YONHAP]

The government vowed not to inject public funds to finance the ailing Taeyoung Engineering and Construction (E&C), having determined its financial soundness to be more severe than that of other builders.

Finance Minister Choi Sang-mok said that the ministry has no intention to inject public funds into the mid-sized builder during a parliamentary session Monday.

“We're looking into Taeyoung E&C's projects related to project financing (PF) loans with open possibilities,” Choi said, describing the builder's financial situation to be exceptionally weak.

He added that it is “not appropriate” at this point to say that negotiations with Taeyoung E&C and its creditors are proceeding smoothly.

On Monday morning, prior to the parliamentary session, the government urged the ailing firm to introduce additional, more detailed self-rescue plans to gain creditors’ trust.

Taeyoung E&C will ultimately proceed with the self-rescue plans it initially proposed in December, the ministry said, in a meeting attended by chiefs of the Financial Services Commission, Bank of Korea and Financial Supervisory Service (FSS).

The company applied for a debt restructuring program last month due to a liquidity crunch over real estate PF loans. It proposed four major self-recue schemes, which would include utilizing the proceeds from the sales of its subsidiary, Taeyoung Industry, and waste-to-energy firm Ecorbit.

But the state-run Korea Development Bank (KDB), which is Taeyoung E&C's main creditor, expressed concerns about that proposal last week, claiming that the company had instead used funds from the Taeyoung Industry sale to settle other debts. The FSS also criticized Taeyoung E&C last week for its management of the debts.

In the meeting, chiefs of the financial authorities agreed on the need for the mid-sized builder to swiftly implement the four major self-rescue plans it had proposed previously.

“The main creditor, KDB, said some progress has been made by Taeyoung E&C, like promising to carry out the four self-rescue plans it submitted when it applied for a creditor-led debt restructuring program,” the ministry said in a statement. It added that creditors will continue to consult closely with the construction firm.

The authorities told creditors to proceed with a debt restructuring program once the practicality of Taeyoung E&C’s self-rescue measures and will to implement those plans are confirmed.

The government said it is ready to “immediately” expand liquidity supply programs “to a sufficient level” from the current level of 85 trillion won ($65 billion) if deemed necessary. The government set aside 50 trillion won for liquidity facilities in 2022 to calm market jitters over the liquidity crunch surrounding the Legoland amusement park.

Taeyoung E&C's liquidity crisis highlights the risks that real estate PF loans — and construction companies' high exposure to those loans — pose to Korea's economy amid a weak property market.

The total balance of outstanding PF loans jumped to 134.3 trillion won as of the third quarter of last year from just 112.9 trillion won at the end of 2020.

BY JIN MIN-JI [jin.minji@joongang.co.kr]