November 26, 2024

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GS E & C corporate logo (Yonhap)

South Korean builder GS Engineering & Construction, facing an unprecedented business suspension for up to 10 months over the recent collapse of an underground parking lot it built, seems to have no other way but to go abroad to seek new business opportunities for the time being, industry sources said Monday.

According to an official from the Ministry of Land, Infrastructure and Transport, the government will push to suspend the company’s operations for eight months under the land minister's authority and ask the Seoul city government to impose an additional two-month business halt for negligent safety checks.

If the disciplinary measures are carried out, GS E&C will not be allowed to secure any new large-sized apartment construction orders on its home turf, leading to significant decreases in its future sales and operating profits, considering that most of its revenue comes from housing projects here.

The official added the measure will not have any impact on the company’s business activities outside Korea, leaving room for it to make up its anticipated losses.

According to Shinyoung Securities, GS E&C is estimated to suffer 7 trillion won ($5.3 billion) in losses of new orders and a drop of 1 trillion won in revenue this year.

“GS E&C is expected to make all-out efforts to accelerate its overseas business during the period of business suspension,” an industry source close to the matter told The Korea Herald.

Earlier this year, the company said it aimed to secure new orders worth 9.5 trillion won at home and 5 trillion won overseas this year. However, the business suspension introduces uncertainties in meeting these sales targets.

A glimmer of hope is the company’s upbeat sales abroad in recent months. In the first half of this year, the company posted some 1.4 trillion won in overseas sales, up from 1 trillion won a year ago. Its order backlog also hit 15 trillion won as of the second quarter this year, on-year growth of 4.9 percent.

"The company has been expanding its overseas business, but it is inappropriate to comment on the company's future plan given the gravity of the situation. The company will focus on cooperating with the ministry to resolve the issue," an official from GS E & C said.

In terms of the company’s stock price, securities firms offered a positive outlook in the longer term, saying the recent thorough review has confirmed the safety of the company’s other construction sites.

In the second quarter, GS E&C reported an operating loss due to its one-off expense of 550 billion won for the reconstruction of the apartment complex in Geomdan New Town, where the collapsed parking lot is located.

In recent weeks, the company’s stock price was on a downward trend, as investors expressed concerns over the ongoing safety inspections of other construction sites. But on Sunday, the government confirmed no issues were found at its other 83 construction sites.

Following the results a day earlier, its stock price had bounced back to close at 14,480 won on Monday, up 3.43 percent from the previous trading day on Friday.

The accident at the construction site took place on April 29. The roof of an underground parking lot collapsed while being built by GS E&C. No casualties were reported.

GS E&C was criticized for the accident as the company was found to have not used sufficient metal reinforcing rods and to have poorly managed the overall construction process.

The ministry said Sunday it will launch an internal commission to review the accident, but deliberation about the punitive measures may take three to five months.

An eight-month business suspension is currently the maximum penalty the ministry can impose for defective construction without a fatality.

In a regulatory filing Monday, the company said it has not yet been informed of the business suspension, adding it would make an additional filing if any new measure is announced.

By Shim Woo-hyun (ws@heraldcorp.com)