[Edaily Marketin LEE GEON-EOM Reporter] Construction companies, whose funding sources have dried up due to the prolonged real estate slump, have virtually disappeared from the corporate bond market. Analysts say that the scale of fundraising has shrunk significantly due to a combination of the construction industry downturn and institutional investors’ aversion to construction bonds.

With a trend of “net redemption”—where even top-tier companies are reducing corporate bond issuance—entrenched across the market, construction firms desperately in need of external funding are facing a vicious cycle of reliance on short-term debt. Driven by fears of unsold bonds, they are being involuntarily forced out of the public offering market, unable to even set foot in it.

According to the financial investment industry on the 1st, the volume of corporate bond issuance by construction companies in the first half of this year totaled 6300억원. This represents a sharp 39% decline compared to the same period last year (1조320억원). With the exception of a handful of large firms—such as HyundaiEngineering&Construction and SK Eco Plant—that raise funds for specific purposes or hold top-tier credit ratings, virtually no construction companies have entered the public corporate bond market.

The market points to two key reasons for this: a general freeze in corporate bond investment sentiment this year, coupled with construction firms’ shrinking ability to raise funds on their own due to real estate project financing (PF) risks and the aftermath of the economic downturn. Analysts suggest that a sense of crisis—that institutional investors’ clear aversion to construction bonds could lead to massive unsold inventory if companies proceed with public offerings—has held them back.

In fact, the corporate bond market continues to show a trend of net redemptions, where redemptions exceed new issuances. According to BondWeb, net corporate bond issuance (new issuances minus redemptions) for the first half of this year stood at minus (-) 4.9287 trillion won. A negative net issuance figure means redemptions exceeded new issuances, indicating that companies are increasingly reluctant to raise new funds through corporate bonds amid persistently high interest rates.

In stark contrast to the first half of last year, which saw net issuance of 12.8343 trillion won, the situation has completely reversed, with the scale of corporate bond financing plummeting by more than 17 trillion won in just one year. Concerns are growing that the financing function of the corporate bond market is being fundamentally undermined by a combination of voluntary exits by high-quality companies and involuntary exits by vulnerable industries.

Adding to these concerns is the fact that corporate bond maturities for construction companies in the second half of the year are expected to reach 2.0132 trillion won. With long-term funding through corporate bond issuance proving difficult due to frozen investor sentiment, construction companies—which must address immediate financial pressures—have no choice but to rely on commercial paper (CP) with maturities of less than one year or short-term loans to repay their debts.

Looking just at the five major domestic construction companies— SAMSUNG C&T CORPORATION(028260), HyundaiEngineering&Construction(000720), DaewooEngineering&Construction(047040), DL E&C CO., LTD.(375500), and GS Engineering & Construction Corp(006360) —the trend toward shorter-term debt structures is clearly evident. As of the end of the first quarter of this year, the total amount of current liabilities (the sum of short-term borrowings and current portion of long-term debt) for these five companies stood at 9.6673 trillion won, an increase of more than 2 trillion won compared to the end of the previous year (7.6503 trillion won). The proportion of current liabilities within total debt also jumped by a significant 7.3 percentage points during the same period, rising from 41.1% to 48.4%.

The problem is that this short-term financing structure—where long-term debt is rolled over into short-term debt—could cause financial uncertainty across the entire construction industry to snowball. Given that even major construction firms are struggling to stay afloat by increasing their reliance on short-term borrowing, the financing environment for small and medium-sized construction firms—which have relatively weaker capital buffers and lower creditworthiness—is inevitably even more dire.

An official in the financial investment industry explained, “In the past, companies could raise funds in the corporate bond market even if they had to pay higher interest rates, but now, with investors completely turning their backs on them, construction companies’ access to the market has been completely cut off.” The official added, “If the current structure—in which companies are barely surviving on short-term borrowing with short maturities—reaches its limit, the burden during the refinancing process will inevitably increase.”