UNJournal Jon Lee | GS E&C (Engineering & Construction) is still reeling from the aftermath of the 'Incheon Geomdan Apartment collapse incident'. The company's financial health has been put on red alert as the cost burden of rebuilding the entire complex has increased, and profitability has declined due to the downturn in the housing market and rising cost rates.

According to the industry sources, GS E&C's growing debt and deteriorating financial strength are weighing on its creditworthiness.

Korea Ratings recently downgraded GS E&C's unsecured bond rating to 'A/stable' from 'A+/negative review'. Its commercial paper rating was also lowered to 'A2' from 'A2+'.

The agency cited the financial burden of debt, including borrowings, as the reason for the downgrade.

According to an analysis of GS E&C's quarterly report, total borrowings on a consolidated basis amounted to 5.86 trillion won in the third quarter, up 998.5 billion won (20.5%) from 4.86 trillion won at the end of last year and up 1.984 trillion won (51.1%) from 3.825 trillion won at the end of 2021.

Net borrowings, which is gross borrowings minus cash and cash equivalents, also rose sharply to 2.321 trillion won at the end of last year from 806.1 billion won at the end of 2021, and again to 2.605 trillion won in the third quarter of this year.  

The ratio of total borrowings to total assets, an indicator of financial soundness, stood at 32.4 percent, up 3.4 percentage points year-on-year. This figure refers to the ratio of borrowings to assets and is considered a potential financial risk if it exceeds 30%.

In the case of GS E&C, the ratio was 32.0% in the first quarter of this year, followed by 32.9% in the second quarter and 32.4% in the third quarter.

The debt-to-equity ratio was 250%, up 36% year-on-year. Generally speaking, a ratio above 200% is a red light for financial health. This is the fifth consecutive quarter that the ratio has risen since 211% in Q2 last year, indicating a steady increase in debt.

Market watchers believe that the deterioration of the financial structure accelerated as borrowing increased due to mergers and acquisitions to expand new businesses, while 55 billion won in reconstruction costs related to the Geomdan collapse incident were reflected in the results.