(Bloomberg) -- Distressed Korean builder Taeyoung Engineering & Construction Co. won support from creditors to begin restructuring its debt, after it had rattled local markets at the start of the year.

The builder of everything from office towers to industrial plants received backing from creditors that hold at least 75% of its aggregate debt, according to a statement from its main lender Korea Development Bank. That was the threshold it needed to pass.

Taeyoung put a spotlight on mounting bad debts in Korea’s property sector earlier this year, rekindling memories of a default in 2022 by the developer of a Legoland amusement park that sent some corporate borrowing costs to over decade-highs. Taeyoung surprised investors by seeking a debt restructuring at the end of last year, forcing Korean authorities to step in to reassure markets of their readiness to prevent contagion, which calmed nerves.   

With the acceptance of the plan, Taeyoung and creditors will implement the agreed restructuring and project-finance workout without delay, KDB said in the statement. If the builder’s project-finance developments are completed as planned, the firm is expected to secure stable liquidity by the end of 2025, according to the bank. 

Read also: S. Korea’s Property Stress a Threat But Systemic Risks Contained

KDB had said earlier this month that Taeyoung will need a debt-to-equity swap of about 1 trillion won ($726 million) to erase capital impairments. Financial creditors would convert 50% of unsecured debt into equity and allow the ailing builder to defer the repayment on the remaining amount for three years under the plan, according to the bank at the time. 

Still, Taeyoung is unlikely to be the last builder with difficulties repaying shorter-term project finance debt, according to analysts at investment banks including Nomura Holdings Inc. Economists at Citigroup Inc. estimate that 111 trillion won of the country’s project-finance debt is “troubled,” according to a report last month. 

Delinquency rates at one key group of Korean lenders nearly doubled to 6.55% last year, and concerns about the impact of souring loans for shadow banks, in particular, are elevated.

The group’s 90-year-old founder, Yoon Se-young, who founded Taeyoung half a century ago, returned to the helm of the conglomerate late last year to try to save the builder. The Taeyoung Group includes Seoul Broadcasting System, which is at the forefront of the Korean drama wave that swept Asia before expanding globally in recent years. 

(Adds comment from KDB)

©2024 Bloomberg L.P.