Concerns are being raised over a possibility that GS E&C’s overseas projects will perform poorly or fail.
According to Nice Investors Service on March 23, GS E&C had the largest loss, which might be incurred by cost ratio adjustment, among the five Korean construction companies surveyed.
Losses incurred by each company's overseas projects were GS E&C's 560.4 billion won (US$543 million), SK E&C's 243.0 billion won (US$211 million), and Daewoo E&C's 101.4 billion won (US$88 million). In addition, it was found that GS E&C had the highest amount of unclaimed construction cost of 400.7 billion won (US$348 million), which is unlikely to be recovered among the five companies.
This has no choice but to raise a red flag for GS E&C's credit ratings. Earlier, GS E&C received a credit rating downgrade (A to A-) from Nice Investors Service. The downgrade was blamed mainly on the delayed completion of overseas projects and additional costs. When the credit rating of GS E&C is determined in the future, the above-mentioned unclaimed construction cost will negatively affect its credit rating.
GS E&C is also having difficulty issuing corporate bonds. The builder is planning to upgrade its issuance of bonds by changing its articles of incorporation at the general shareholders' meeting this month. As a result, a limit on the issuance of convertible bonds (CB) and bonds with warrants (BW) will increase from 500 billion won (US$435 million) to 800 billion won (US$696 million) in the case of common stocks. A BW is a bond which grants its holder a right to buy new shares at a fixed price. Unlike CBs, it is possible to trade BWs’ bonds and warrants separately. "GS E&C has changed its plan to issue bonds because it was difficult to issue corporate bonds due to credit rating downsides." said an official of the securities industry.