[Edaily Marketin, Reporter Lee Geon-eom] #Hyundai Engineering & Construction has aggressively expanded its overseas operations but is experiencing a slowdown in cash flow due to its inability to collect construction payments on time. Despite a decline in revenue, the company’s financial soundness has been significantly undermined by the accumulation of unpaid receivables, leading to increased provisions for bad debts and the sale of receivables at a discount (factoring) while incurring substantial fees.

Concerns are mounting that the future funding environment could deteriorate further, as credit rating agencies view the increased financial burden resulting from expanded working capital as a factor in Hyundai Engineering & Construction’s credit rating downgrade.

According to the Financial Supervisory Service’s electronic disclosure system on the 17th, Hyundai Engineering & Construction’s accounts receivable stood at 7.6636 trillion won as of the end of the first quarter of this year, a 12% increase from 6.8423 trillion won at the end of last year. This represents a 36.6% increase compared to the end of the first quarter of last year.

In contrast, Hyundai Engineering & Construction’s revenue for the first quarter of this year was 6.2813 trillion won, a 15.7% decline from the 7.4556 trillion won recorded in the same period last year. This indicates that the rate at which accounts receivable are converted into revenue has slowed, meaning that the company’s actual cash on hand has decreased further.

In fact, Hyundai Engineering & Construction’s accounts receivable turnover ratio for the first quarter of this year—calculated based on annualized revenue and reflecting the average accounts receivable at the beginning and end of the period—was 3.46 times, a decrease of 1.65 times compared to 5.11 times at the end of last year. Taking this into account, it takes Hyundai Engineering & Construction more than three months (105.5 days) to collect its accounts receivable. This is more than a month longer than the 71.4 days recorded at the end of last year, suggesting that as funds remain tied up at construction sites for longer periods, both liquidity pressure and the risk of non-performing receivables have increased simultaneously.

As unpaid receivables accumulated on the books in this manner, net working capital—which represents funds tied up in actual operating activities (accounts receivable + inventory – accounts payable)—also ballooned. Hyundai Engineering & Construction’s net working capital as of the end of the first quarter stood at 4.686 trillion won, a sharp increase of more than 1 trillion won compared to the end of the previous year (3.6229 trillion won). With sales contracting while the burden of working capital continues to grow, analysts note that an overall liquidity crunch is becoming increasingly evident.

The increased working capital burden directly led to a deterioration in cash flow. Hyundai Engineering & Construction’s cash flow from operating activities for the first quarter was negative (-) 1.5996 trillion won, with the net outflow increasing by nearly 400 billion won compared to the same period last year (-1.2092 trillion won). Free cash flow (FCF), which represents the actual amount of cash available for use, also recorded a massive deficit of -2.3451 trillion won.

A negative FCF indicates that cash generated from core business operations is insufficient to cover investment expenditures and working capital. It is inevitable that the company’s reliance on external borrowing and financing activities will increase in the future.

The problem is that this increase in accounts receivable goes beyond a simple delay in collection and is leading to qualitative deterioration. As of the end of the first quarter, the allowance for doubtful accounts (cumulative impairment loss) set aside for current construction receivables stood at 372.4 billion won, a 5.7-fold (474%) surge compared to the same period last year (64.8 billion won).

Despite having cleared out non-performing assets by setting aside large provisions during last year’s financial settlement process, the scale of write-offs expanded in the first quarter of this year alone as an additional 30.7 billion won in expected credit losses was recognized. This indicates that profits that previously existed only on the books are continuing to transform into “non-performing receivables” with little chance of recovery.

Given this situation, analysts suggest that Hyundai Engineering & Construction will inevitably have to increase its reliance on factoring, which involves external borrowing and financial costs. Hyundai Engineering & Construction has signed foreign currency factoring agreements worth several trillion won with institutions such as the Export-Import Bank of Korea. Factoring is a method by which a company liquidates assets by selling accounts receivable generated from business operations to financial institutions, such as installment leasing companies, and receiving a discounted payment in return.

In effect, the company is transferring bad receivables from large-scale projects to financial institutions—even at the cost of high fees (discount rates)—to convert them into immediate cash. Its recent move to issue 5000억 won worth of convertible bonds (CBs) to secure liquidity is also interpreted as a response to its loss of self-financing capacity.

The credit rating industry believes that if Hyundai Engineering & Construction’s trend of increasing accounts receivable continues, it could lead to a credit rating downgrade. In fact, domestic credit rating agencies, including #Korea Corporate Rating, consider the rising trend in working capital—such as accounts receivable and uninvoiced construction work—and the resulting increase in debt burden to be key factors for a downgrade when evaluating Hyundai Engineering & Construction’s credit rating.

Kim Hyun, a senior researcher at Korea Corporate Rating, noted, “With the completion of projects started during the past housing boom—46 in 2024 and 28 in 2025—concentrated in a short period, an increase in working capital burdens to a certain extent is inevitable.” However, he added, “Even taking this into account, the current scale of Hyundai Engineering & Construction’s accounts receivable is excessive.”