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Jungheung to become 3rd largest builder in Korea after Daewoo E&C takeover

Jungheung sets foothold for overseas expansion through Daewoo E&C, while Daewoo E&C secures financial stability

A rendered image of Pyeongtaek Brain City, a project for a technology complex in Pyeongtaek led by Jungheung Group. (Jungheung Group)
A rendered image of Pyeongtaek Brain City, a project for a technology complex in Pyeongtaek led by Jungheung Group. (Jungheung Group)

Construction conglomerate Jungheung Group’s acquisition of much-larger rival Daewoo Engineering & Construction on Thursday is set to make Jungheung the third-largest builder by asset in South Korea, following Samsung E&C and Hyundai E&C. 

While the two firms will run management individually under terms, Jungheung Group said it will retain Daewoo E&C staff and executives and guarantee the builder‘s independence in management. The two builders’ flagship apartment franchises Prugio and Jungheung S-Class will also run separately. 

Market experts viewed that since the two firms have different strengths and capabilities in the construction and engineering field, such management style will help the companies make synergy in real estate development sector, overseas projects, as well as enhancing brand awareness.

Founded in southern city of Gwangju in 1983, Jungheung has established its reputation through public housing projects such as redevelopment for new towns in Gwangju and surrounding provincial regions, largely relying on orders by Korea Land and Housing Corp. The group created as many as 34 affiliates in order to net as many orders as possible from the state housing firm, as the orders were given based on a lottery-like process.

Since the early 2000s, Jungheung has expanded its turf to the Gyeonggi Province area to raise its profile as a premium apartment builder with its apartment brand Jungheung S-Class.

In 2015, Jungheung Group was newly added to the list of the country’s conglomerates by Korea Fair Trade Commission. Its total assets were worth 5.5 trillion won ($4.6 billion), with 3.2 trillion won in sales as of end of 2014. Jungheung Group’s total assets rose to 9.2 trillion won in 2020, placing itself as the 47th largest company in Korea, according to FTC. 

Following the acquisition of a controlling stake in Daewoo E&C, Jungheung will step up to the 21st largest conglomerate with around 19 trillion won in total assets, according to the industry. 

While Jungheung has been focusing on housing projects locally, what they can gain from the acquisition of the Daewoo E&C would be its experience in overseas projects. 

Daewoo E&C, the six-largest construction and engineering company in Korea, was once a major affiliate of the now-defunct Daewoo Group, one the country’s largest conglomerates in the 1990s. The builder was later owned by Kumho Asiana Group, but has been on sale for years.

Daewoo E&C’s key businesses include building its premium apartment brand Prugio as well as overseas plants for liquefied natural gas regasification and storage tanks. 

A rendered image of Daewoo E&C’s Starlake City project in Hanoi, Vietnam. (Daewoo E&C)
A rendered image of Daewoo E&C’s Starlake City project in Hanoi, Vietnam. (Daewoo E&C)

Some of the major overseas projects include a 2.6 trillion-won project in Vietnam to build residential, commercial and government agency buildings on 2.1 million square meters of land in Starlake City in Hanoi, Vietnam by 2024. The start of the project goes back to 1996 when Daewoo E&C proposed the new town project to the Vietnamese government. 

Other ongoing projects include building facilities for a large-scale port in Iraq, which is worth 2.9 trillion won. Named Al Faw Grand Port project, Daewoo E&C will build a sea wall, connecting roads, a main canal, a tunnel, in addition to previous deals clinched for the same project in 2013. 

A rendered image of Daewoo E&C’s Al Faw Grand Port project in Iraq. (Daewoo E&C)
A rendered image of Daewoo E&C’s Al Faw Grand Port project in Iraq. (Daewoo E&C)

For Daewoo E&C, the takeover deal means a solution for urgent cash needs.

Jungheung Group has pledged that the first thing it will do after the acquisition will be to lower Daewoo E&C’s debt ratio. Its debt ratio was 223 percent as of the third quarter, far above those of competitors such as Samsung E&C (64 percent), Hyundai E&C (104.6 percent) and HDC Development (122.9 percent). The average debt ratio for Kospi-listed firms was 115 percent. Jungheung Group’s debt ratio was at 105.1 percent as of end of 2020. 

The builder is the parent company of Herald Corp., publisher of The Korea Herald.

By Kim Da-sol (ddd@heraldcorp.com)
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