Korea’s DL E&C suffers from Russian war, chairman-related risk

DL E&C Co., a South Korean offshore plant and construction company, is suffering from its suspended projects in Russia, one of its key overseas markets, and risks related to its group chairman.

Shares of DL E&C, the construction unit of DL Group, formerly known as Daelim, have fallen 24% to 51,000 won since the start of the second quarter due to worsening profitability.

The company’s operating profit in the first quarter of this year stood at 125.7 billion won ($100 million), down 37% from 199.8 billion won in the year-earlier period. Its first-quarter profit fell for the third straight year on a year-on-year basis.

Its first-quarter consolidated revenue was 1.52 trillion won, down 31% from the previous quarter.

The company attributed its weakening sales and profit to uncertainty surrounding Russia’s invasion of Ukraine.

Last December, DL E&C clinched a 1.6 trillion won deal to build a gas and chemical plant for Russia’s Baltic Chemical Complex (BCC) LCC. In March of last year, it also clinched a 327.1 billion won project to modernize Gazprom Neft’s refinery facilities in Russia.

However, the two projects have been put on hold in the wake of the Russia-Ukraine war.

“We’re aggressively looking for projects in the Middle East to limit the negative impacts of the Russian war,” said a company official.

DL Construction Co., a unit of DL E&C, has also seen its sales decline due to the rise in raw material prices following the war.

DL Construction, widely known for building apartment buildings under its e-Pyeonhansesang brand in Korea, posted 3.9 billion won in first-quarter operating profit, down 94% from the year-earlier period. New construction orders fell 77% to 115.6 billion won over the same period.

CHAIRMAN-RELATED RISKS

Another factor that pressures DL E&C’s shares is a legal risk involving DL Group Chairman Lee Hae-wook.

Last year, prosecutors sought a one-and-a-half-year prison term for Lee, charging he made an undue profit using the group’s Glad Hotel & Resorts trademark.

Lee is accused of transferring the trademark of the group's hotel brand Glad to a private company owned by him and his family, who allegedly unfairly earned royalties from the use of the trademark.

A Seoul court has levied 200 million won in fines on Lee over the charge. DL Corp. and Glad Hotel & Resorts were also fined 50 million won and 30 million won, respectively.

Denying the allegations, Lee is appealing the case to a higher court.

In 2020, Daelim Industrial Co., a major Korean builder, decided to split into three firms – a holding company and two affiliates – as the company sought to enhance corporate governance and focus its resources on each unit’s specialty business area.

DL Group’s other affiliates include DL Chemical Co. and Yeochun NCC Co.

Write to Hye-In Lee at hey@hankyung.com
In-Soo Nam edited this article.