Nice Investors Service Downgrades Daewoo E&C Credit Rating Outlook to 'Negative'

Nice Investors Service has revised the long-term credit rating outlook for Daewoo Engineering & Construction from “Stable” to “Negative.”

Nice Investors Service stated on the 12th, “Last year we recognized large-scale losses related to uncollected receivables at domestic project sites and additional costs at overseas project sites,” adding, “In light of this, we comprehensively considered the fact that the deterioration in financial soundness has materialized and that it will take a considerable amount of time to improve the financial structure.”

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On a consolidated basis, Daewoo Engineering & Construction posted revenue of 8.0546 trillion won, an operating loss of 815.4 billion won, and a net loss of 916.1 billion won last year.

Regarding this, Nice Investors Service said, “The large-scale losses are mainly attributable to approximately 595.0 billion won in bad-debt expenses related to unsold apartments and income-producing real estate projects in Korea, and approximately 660.4 billion won in expected additional costs in the overseas segment.”

It went on to say, “In the domestic segment, recognition of bad debts was concentrated on unsold apartments and knowledge industry centers that were completed last year or are scheduled for completion this year,” adding, “In the overseas segment, we reflected costs in a lump sum for projects such as the immersed tunnel in Iraq, the urban railway in Singapore, and the Nigeria NLNG T7 project, taking into account additional costs arising from project-specific constraints.”

Nice Investors Service explained, “Reflecting these large-scale losses, we estimate that, based on provisional results, Daewoo Engineering & Construction’s capital will shrink from 4.3 trillion won at the end of 2024 to 3.5 trillion won at the end of 2025, while its debt-to-equity ratio will rise from 192.1% to 284.5% over the same period, indicating that the deterioration in financial soundness has materialized to a considerable extent.”

It added, “Although this Big Bath has partially resolved potential loss factors, we believe it will take time to improve the financial structure, given that the net debt burden remains at an excessive level and capital buffers have weakened.”

Meanwhile, Nice Investors Service said, “We plan to monitor whether the company can block additional loss factors related to business risk and succeed in improving profitability,” and suggested, “In addition, as the bifurcation in the real estate market is prolonged, it is necessary to continuously review trends in improving sell-through rates at already-launched projects via discounted sales, as well as initial sell-through rates at newly launched projects.”

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