[Alpha Biz= Reporter Kim Sangjin] Isu Chemical is grappling with increasing financial pressures due to a downturn in the petrochemical industry and ongoing liquidity support for its subsidiary, Isu Construction. The latter has resorted to issuing perpetual bonds to secure funding as its financial situation worsens.

As of June, Isu Chemical's debt ratio was 271.6%, down from 319.5% at the end of last year but still alarmingly high. The primary driver of this elevated debt ratio is the liquidity assistance provided to Isu Construction.

In 2021, Isu Chemical invested 70 billion KRW in a capital increase for Isu Construction, and guarantees for its financing—including loans, private placements, asset-backed loans (ABL), and perpetual bonds—have exceeded 100 billion KRW. Continuous financial support for Isu Appgis, a bio venture, has also contributed to the sharp rise in the debt ratio.

The debt ratio for Isu Chemical rose from 181.9% in 2019 to 239.1% in 2020, fluctuating until it surpassed 300% last year. Although it has decreased below 300% this year, ongoing struggles in the petrochemical sector due to rising oil prices necessitate improved risk management.

Isu Construction has seen its profitability decline significantly, recording a cost-to-sales ratio of 102% last year. As construction projects proceed, the company experiences increasing losses, with operating losses and net losses of 41.5 billion KRW and 49.8 billion KRW, respectively, last year.

In 2020, Isu Construction incurred a bad debt expense of 64.1 billion KRW after failing to collect payments from overseas projects in Libya and Sierra Leone. The prolonged downturn in the housing market has further diminished the viability of its projects.

According to Isu Chemical's semi-annual report, Isu Construction generated 204.2 billion KRW in revenue for the first half of this year but suffered a net loss of 23.3 billion KRW. Currently, Isu Construction is engaged in building various types of residential facilities in locations such as Yangyang in Gangwon, Seongnam-dong in Incheon, and Dongducheon in Gyeonggi Province.

Isu Construction has issued perpetual bonds at a high interest rate of 8.5%. Due to a reduction in new projects and the burden of financial costs, the company is expected to struggle to improve its financial condition for the foreseeable future. Its debt ratio has soared to 817%, and its ranking in the construction sector has dropped from 80th to 85th this year.

Founded in 1976, Isu Construction initially focused on housing projects, achieving growth with the introduction of the Brownstone brand in 2002. However, liquidity issues led to it becoming a workout target in 2009. After graduating from workout status two and a half years later, the company has continued operations mainly in housing and construction.

 

 

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