To achieve overseas construction orders of $2 trillion early, claims have been made that the government, construction companies, and financial firms must establish 'Team Korea' from the beginning of projects to expand participation in linked investment and development projects. There is also an opinion that diversifying the recipient countries of contracts is necessary to leverage the competitive edge of domestic construction companies, which have strengths in industrial facilities.
Kim Jong-pil, Head of Team in the investment management division of Kiwoom Securities, noted on the 16th at a major forum held at the Westin Chosun Hotel in Jung-gu, Seoul, aimed at achieving $2 trillion in overseas construction orders early, that this was outlined in the presentation on 'Roles and Tasks of Government and Corporations for the Development of Overseas Construction Industry.'
Head of Team Kim diagnosed that while domestic construction companies currently possess comprehensive construction capabilities in architecture, civil engineering, and plants and are expanding overseas orders, these orders are concentrated in specific countries and there is a lack of global implementation capacity and relationships with local clients. However, he asserted that as domestic business conditions are continuously deteriorating due to factors such as population decline, expanding overseas operations is essential.
To expand overseas construction orders, Head of Team Kim stated that projects should first be expanded from an engineering, procurement, and construction (EPC) model to an investment and development model. In an investment and development project, participants bear part or all of the required expenses and propose projects, sharing profits according to their equity. Last year, the share of investment and development projects in the overseas construction orders of domestic corporations was only around 10%.
In particular, it has been pointed out that construction companies need to collaborate with financial firms from the early stages of projects to expand investment and development projects. Head of Team Kim stated, "Construction companies should consult with securities firms about financial structures from the initial review of the project and seek conditions for participation such as equity structure, loan structure, and credit enhancement."
To increase participation rates of financial firms in investment and development projects, it is necessary to resolve regulations for long-term investments and loans. The government is promoting the activation of venture capital; however, due to restrictions on domestic and foreign real estate investments, it is difficult for financial firms, including securities firms, to expand their investments in overseas construction projects. Especially in the case of securities firms, the areas where they can expand credit through the issuance of promissory notes are limited to corporate finance, while real estate is not included under corporate finance.
Head of Team Kim remarked, "To promote participation by domestic financial firms, it is necessary to recognize venture capital when engaging in overseas construction and investment development projects," and added, "In the case of securities firms, if investments related to overseas construction are recognized as corporate finance, more than 140 trillion won of investment capacity can be secured." He further noted, "A meaningful level of investment capacity must be secured to expand overseas construction orders."
There are arguments that the structure of overseas construction orders, which is heavily skewed towards the Middle East and Asia, must change. Looking at the cumulative order status by country, the Middle East and Asia are dominant with Saudi Arabia (17.7%), the United Arab Emirates (8.4%), Kuwait (4.9%), Singapore (4.8%), and Vietnam (4.8%). Head of Team Kim stated, "Investments by domestic financial firms in overseas real estate have been biased toward advanced countries, but considering the characteristics of financial firms that pursue diverse portfolios, there is ample room for expansion into other regions."
Domestic construction companies are also seeking to diversify the countries for overseas construction orders. Jang Young, executive director of GS Engineering and Construction, stated, "In the Middle East, there are many medium- to long-term vision projects by country and public-private partnerships (PPPs) are being activated, but the market players are changing and localization is strongly demanded, creating a difficult situation," and added, "I currently have doubts about the effectiveness of PPPs in Asian countries." He continued, "The North American market is considered a good region, and we are interested in it," and mentioned, "There is hope for market expansion in infrastructure considering the regulatory relaxation due to Trump 2.0 and infrastructure aging."