Ongoing legal disputes with the Korean government will put more pressure on the performance of local builders possibly for years to come

2013-10-30 16:46

Major builders in deeper trouble

By Choi Kyong-ae
Ongoing legal disputes with the government will put more pressure on the performance of local builders possibly for years to come, experts and companies said Wednesday.
Adding further woes to a construction sector still struggling with sluggish sales, two government agencies recently banned dozens of firms from bidding for construction projects placed by public firms for up to 15 months.In a quick response to the move, Hyundai Engineering and Construction and other accused firms filed for a preliminary injunction to overturn the decision made by the Public Procurement Service (PPS) and the Korea Water Resources Corporation (K water), a Hyundai E&C spokeswoman said by telephone.
“The two public companies argue the builders colluded to evenly share the mega project to refurbish the country’s four biggest rivers (under the former Lee Myung-bak government) but it is not true,” said the spokeswoman.
The National River Restoration, better known as the “four rivers project,” was aimed at reshaping and rehabilitating portions of four of the country’s biggest rivers, the Han, Geum, Naktong and Yeongsan, to generate recreational areas for the public and provide better protection against flooding.
An official from Daewoo Engineering & Construction stated that accusations that large builders reaped profits worth about 1 trillion won ($943 million) by exploiting their subcontractors, made by some lawmakers, were groundless. “The fact is, most construction companies sustained huge losses from the project after they were forced to join,” he said.
As the first round of legal battles is expected to last for at least one year, “our biggest worry for the moment is this may have a negative impact on the corporate image outside the country and on efforts to win overseas projects,” the Hyundai E&C spokeswoman said. “The builders are allowed to attend bids for public projects until the court makes a ruling on the legal dispute (with the government),” she said.
In October, the PPS imposed sanctions on Hyundai E&C and 14 other construction companies to prevent them from participating in any public projects for up to 15 months through Jan. 22, 2015, while K water also took the same action against 10 builders last week.
The steps taken by PPS and K water come after the Fair Trade Commission imposed a total 111.5 billion won in fines on construction companies for collusion in June last year, and prosecutors indicted 22 former and incumbent officials of the companies for their involvement in the misconduct in September this year.
Asked if they have an official stance on the preliminary injunction filed against it by the builders, PPS spokesman Yoo Jeong-geun said, “We took proper measures against them and we have nothing to say regarding this matter. The ball is now in the judge’s court.”
Builders posted weak results for the third quarter, showing how the economic slump is still influencing poor sales for builders.
Daewoo E&C posted a net profit of 131 billion won, a 19 percent decline from a year earlier. Hyundai E&C reported a 1.8 percent year-on-year drop in net income at 169 billion won. Samsung C&T saw its net profit for the January-September period plummet by 38 percent to 264 billion won from the same period one year ago.
Analysts say it will likely take a while before the nearly moribund construction industry fully recovers from the 2008 financial crisis.
“The legal battle with the government will definitely weigh on construction firms, whether they win or not, until the battle is over,” Kyobo Securities analyst Cho Joo-hyoung said.