Title Effects of the contingent liabilities caused by project financnig on financial status of the Korean construction firms
Authors Kang, Namhui ; Kim, Hyunjoong ; Choi, Jaehyun
DOI http://dx.doi.org/10.6106/KJCEM.2015.16.6.084
Page pp.84-91
ISSN 2005-6095
Keywords Project Finance ; Contingent liabilities ; Financial ratio ; Credit rating
Abstract Project Financing (PF) is a financing method, executed based upon the projected profitability from a project itself instead of relying on the credit rating of project sponsors or any type of collateral. However, most financial institutions of Korea lacks the long term profitability assessment capability, and they prefer to acquire credit reinforcement from the construction companies in the form of the guarantor or debt argument commitments. As a result, PF contingent liabilities as an indirect debt, are burdened to the construction companies. Even though the PF contingent liabilities are not supposed to be part of the financial statements, they became a mandatory disclosure items since 2009. In this study, PF contingent liabilities were studied to indicate how they were correlated with construction firms’ financial ratios. Construction firms were grouped by their credit rating and each group was compared in order to analyze PF contingent liabilities’ impact on the financial condition of the company in terms of liquidity, liability, and stability.