Three major South Korean construction companies have turned to convertible bonds as a fundraising method in recent weeks. Doosan E&C will issue a 45 billion won private convertible bond on the 31st with a 7% interest rate and 2-year maturity, targeting its largest shareholder The Genith Holdings. Hyundai E&C issued a 500 billion won private CB last month for small modular reactor investments with 0% interest and 5-year maturity, while Dongbu E&C raised 40 billion won through a private CB in April with 3% surface interest rate and 4-year maturity. The companies chose convertible bonds over traditional corporate bonds due to lower interest burdens, as CBs typically carry reduced rates because of the embedded conversion rights. The construction industry faces headwinds from rising construction costs tied to Middle East conflicts and elevated interest rates, making investor recruitment challenging for all but the most creditworthy firms.
Doosan E&C Issues 45 Billion Won Convertible Bond to Largest Shareholder
Doosan E&C will issue a 45 billion won private convertible bond on the 31st with a 7% surface and maturity interest rate and a 2-year maturity period. The conversion price is set at 1,369 won per share, representing 6.13% of issued shares upon conversion. The CB targets The Genith Holdings, the company's largest shareholder and a special purpose vehicle established by private equity fund Q Capital Partners. On the same day, Doosan E&C will also issue a 15 billion won private corporate bond with a 7% surface rate and maturity in July 2028, also targeting the largest shareholder. A Doosan E&C representative stated the issuances aim to reduce financial costs by lowering interest rates compared to existing CBs and to secure financial stability for stable fund operations.
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Doosan E&C [Source: Yonhap News file photo]
Hyundai E&C Raised 500 Billion Won Through Zero-Interest Convertible Bond
Hyundai E&C issued a 500 billion won private convertible bond last month to secure funds for small modular reactor projects. The CB carries 0% surface and maturity interest rates with a 5-year maturity. The conversion price was set at 150,607 won, a 15% premium above the board resolution price. The issuance excluded conversion price adjustment provisions and early redemption rights, terms considered favorable to the issuer. Market observers noted the absence of repricing mechanisms minimizes shareholder dilution risks.
Dongbu E&C Secured 40 Billion Won Amid Operational Turnaround
Dongbu E&C issued a private convertible bond in April, raising 40 billion won for operating funds and debt maturity extension. The CB features a 3% surface interest rate, 6% maturity interest rate, and 4-year maturity, with both repricing provisions and put options included. The issuance followed an operational turnaround—the company recorded 42.6 billion won in operating profit in the previous year after posting a 96.9 billion won operating loss in 2024. In the first half of this year, Dongbu E&C achieved 1.4 trillion won in contract awards, a 30% increase compared to the same period in the previous year. The company stated it chose CBs partly to increase the number of shares in circulation, expecting long-term positive effects on stock price given the previously limited share count.
Construction Firms Face Shareholder Dilution and Investor Recruitment Challenges
While construction companies show growing interest in convertible bonds, analysts identify limitations preventing CBs from becoming a primary fundraising tool. Listed companies face shareholder dilution concerns when issuing convertible bonds. Recruiting investors presents another challenge amid unfavorable industry conditions including rising construction costs from Middle East conflicts and elevated interest rates. A bond market official stated that unless companies benefit from semiconductor sector growth or possess strong credit profiles, securing investors remains difficult. The official added that even when CB terms align with company circumstances, investor recruitment remains a necessary hurdle.
