Lehto Group’s logo on a fence surrounding a construction site in Helsinki in September 2019. The cash-strapped construction conglomerate reported this week that three of its subsidiaries have filed for bankruptcy. The subsidiaries accounted for most of the 345 million euros the group reported in revenue in 2022, making the bankruptcy the largest amid the recent turmoil in the Finnish construction industry. (Emmi Korhonen – Lehtikuva)


THE TURMOIL in the Finnish construction industry claimed its largest victim to date on Tuesday.

Lehto Group, a construction conglomerate listed on Helsinki Stock Exchange, announced bankruptcy filings by its commercial and residential construction subsidiaries, Lehto Asunnot, Lehto Tilat and Lehto Korjausrakentaminen.

The subsidiaries simply do not have the finances to continue operations, the conglomerate conceded. The subsidiaries accounted for most of the 345 million euros the group reported in revenue in 2022, but had more than 66 million euros in outstanding debt, according to Helsingin Sanomat.

Trading on Lehto Group’s shares was suspended on Tuesday on Helsinki Stock Exchange.

Helsingin Sanomat on Tuesday pointed out that Lehto Group has witnessed a dramatic decline in both revenue and operating profit in recent years. While the group reported an operating profit of 37 million euros on revenue of 720 million euros in 2018, its revenue for the first three quarters of last year added up only to 154.5 million euros, with the operating result falling 23.5 million euros into the red.

Lehto Group was nonetheless the 11th largest company in the domestic construction industry by revenue, according to an analysis by Rakennuslehti.

The conglomerate stated that it is evaluating options for either selling, re-structuring or continuing the operations of both the parent company and the remaining subsidiaries. CEO Juuso Hietanen declined to name any of the options as the more likely than the others in an interview with Helsingin Sanomat on Tuesday.

“So many pieces are moving that it’s impossible to say anything about probabilities. All options are being considered,” he said.

Lehto Group has for the past year pursued various ownership and structure-related solutions in order to survive the downturn in the construction industry.

In October, it put pen to paper on a letter of intent for the sale of its subsidiaries to an unnamed investor. The sale collapsed in December, prompting the conglomerate to warn that it would not be able to meet its financial obligations in the first quarter of this year without additional funding.

Juhana Brotherus, the chief economist at Suomen Yrittäjät, stated to Helsingin Sanomat on Wednesday that, with no immediate respite is in sight for the construction industry, the bankruptcy numbers will likely remain high at least until the second half of the year.

“The near-term outlook for construction is still very challenging. It’s very difficult regardless of whether you examine it through the number of construction permits, industry confidence or almost any other indicator,” he noted.

Between September and November, the cubic volume of new construction permits was 17 per cent lower than one year earlier, according to Statistics Finland. The Confederation of Finnish Industries (EK), meanwhile, has reported that its confidence indicator for the construction industry stood at -39 in January, well below its long-term average of -7.

Sami Pakarinen, a director at EK, highlighted that the situation in new residential construction is as bad as it was in the 1940s, with the demand for newly built residential units down due to increasing supply and rapidly rising interest rates.

“Construction is in deepest trouble out of all main industries,” he summed up.

“The situation may become even more challenging for companies in the winter and spring because some of the ongoing projects will be completed and companies don’t have new worksites in their place. That’s how thin the order books have become,” Brotherus warned in an interview with Helsingin Sanomat.

There are some positive signs, too, however.

“The decline in interest rates will start alleviating the situation in the construction industry quickly because the loan stock’s structure is such that the decline will pass through quickly and because the construction industry is very sensitive to interest rates,” explained Brotherus.

The rebound is likely to be quick also because there has been no “needless construction” in Finland, according to Brotherus. Occupants should thus be found for the newly built houses and offices that remain vacant sooner rather than later.

“The needs for construction still exist because population growth in growth centres was unusually, if not historically, strong last year,” he added. “Markets are gradually starting to reflect the fact that there are no soon-to-be-completed projects in the pipeline. That’s when the balance between supply and demand will shift to a different position than now, but mostly it’ll be a 2025 phenomenon.”

Aleksi Teivainen – HT