Debt-Laden Korea Firm Edges Closer to Restructuring Deal

(Bloomberg) — The distressed builder that’s revived concerns about project finance crises in South Korea has gotten major creditors on board with its restructuring plan.

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Those creditors of Taeyoung Engineering & Construction, whose projects include a baseball stadium and amusement parks, agreed Wednesday that the company’s planned restructuring could proceed if the plans are implemented as proposed. Taeyoung E&C faces a Thursday deadline to decide with creditors whether to move forward with restructuring talks. The builder’s push to restructure debt has already led to warnings of broader insolvency risks and prompted government officials to pledge policy action to prevent contagion.

A property debt crisis jolted Korea with a default in 2022 by the developer of a Legoland amusement park that sent some corporate borrowing costs spiking to more than 10-year highs. Policy steps to support the market helped stanch that crisis. But just months later, last July, project-finance distress flared again when MG Community Credit Cooperatives — one of the nation’s biggest credit unions — suffered abrupt deposit outflows amid concerns about soured loans.

“The property sector will likely remain a major financial stability concern,” Goldman Sachs Group Inc.’s Goohoon Kwon and Irene Choi wrote in a note.

Authorities are on alert for risks of broader market contagion. President Yoon Suk Yeol said during a public debate on the housing market Wednesday that the government is managing property project-finance issues “well,” as finance, land ministries, financial regulators and Bank of Korea are monitoring and taking measures. Officials had pledged in recent days to step up a $66 billion program to stabilize markets, if needed, to limit any spillover.

South Korea’s land ministry announced that Korea Housing and Urban Guarantee and Korea Housing Finance Corp. will expand support for loan conversion of project finance securities guaranteed by construction companies to 5 trillion won ($3.8 billion) from 3 trillion won. That’s the type of asset-backed security at the root of the 2022 Legoland developer crisis, to which Taeyoung E&C is also heavily exposed.

So far, all the policy support has been enough to keep credit markets stable. Spreads on three-year AA-rated corporate bonds over similar-maturity government notes steadied after Taeyoung announced its restructuring request in late December. While they widened a notch to 0.75 percentage point on Wednesday, that’s still below the nine-month high of 0.85 percentage point in November.

“Notwithstanding elevated interest rates, financial markets have remained resilient, reflecting liquidity support and property market deregulation,” the Goldman analysts wrote.

Taeyoung has been making other moves to pay down debt. The company received a cash injection from its parent TY Holdings earlier this week, a step creditors had been seeking. In a further conciliatory move, the broader Taeyoung Group said it was prepared to offer its stake in Seoul Broadcasting System, one of the nation’s biggest broadcasters, as collateral. Also, TY Holdings has agreed to sell the 50% stake it owns in water treatment business Ecorbit, a joint venture with KKR & Co., a step that may bring in more money to repay debts.

(Updates throughout with meeting results, officials’ comments and spreads.)

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