The Illusion of a Rebound in Overseas Contract Awards... Nearly Half of August's Results Came from Contract Increases

[Financial News] Nearly half of last August's overseas construction contract awards came from increases to existing contracts rather than new projects. With few large-scale new projects available, construction of overseas plants for Korean manufacturing companies propped up the results.
According to the International Contractors Association of Korea (ICAK) on the 28th, Korean companies' overseas construction contract awards totaled $2.85035 billion last month. Compared with the approximately $600 million awarded in July, the figure was more than four times higher in just one month.
However, the nature of the major projects comprising the monthly total makes it difficult to conclude that new contract awards increased. The increased contract values marked as "increases" among the major projects worth $10 million or more disclosed by ICAK totaled $1.34507 billion. That amounted to 47.2% of all awards in August. This figure is based only on the major projects that were disclosed. Even using the identifiable amounts alone, nearly half of August's awards came from adjustments to the contract values of existing projects.
Most of the increased contract value came from Samsung E&A's SEMV2 project for Samsung Electro-Mechanics in Vietnam. The increase for the project, ordered by Samsung Electro-Mechanics' Vietnamese subsidiary, amounted to $952.01 million, accounting for 33.4% of all awards in August.
The contract value for the construction of LG Electronics' third plant in India, handled by GS Engineering & Construction, was also increased by $101.62 million. Increases of $85.11 million and $52.09 million, respectively, were reflected in Daewoo Engineering & Construction's emergency repair projects at the Kaduna refinery and Warri refinery in Nigeria. The Mozambique LNG project also saw an increase of $44 million.
The foundation work for Singapore's Marina Bay Sands integrated resort increased by $54.09 million, while CJ Logistics' construction project for a new base in Hungary rose by $19.68 million. Increased contract values were also included in Hyundai Engineering's projects for Hyundai Motor's Pune Plant and Chennai Central Canteen in India.
Related awards tied to Korean manufacturing companies' investments in overseas production bases also stood out. Projects ordered by the Vietnamese subsidiary of Samsung Electro-Mechanics, the Indian subsidiaries of LG Electronics and Hyundai Motor, the Chinese subsidiary of LG Energy Solution, and the Hungarian subsidiary of CJ CheilJedang appeared on the list of major awards. Projects linked to Korean companies' overseas capital expenditures are partially filling the gap in contract awards, rather than large infrastructure projects pursued by local clients abroad.
The government's target for overseas construction contract awards this year is $50 billion. However, awards from January through August totaled $14.74 billion, reaching only 29.5% of the target. At the current pace, even reaching the average annual award total of $35.9 billion over the past five years is expected to be difficult.
The biggest factor was the slowdown in the Middle East, a traditional stronghold for Korean contractors. The Middle East accounted for 48.9% of cumulative contract awards from 1966, when overseas construction statistics began being compiled, through last year. This year, however, awards in the Middle East totaled just $2.31 billion from January through August, or 15.7% of the total.
In the Middle East this year, investment decisions by major clients and bidding schedules have been delayed by geopolitical uncertainty, including the U.S.-Iran war. Projects awaiting decisions include Saudi Arabia's approximately $2 billion Kapuji Gas Project and Qatar's $4 billion urea plant.
A construction industry official said, "We are positive about the possibility of additional awards because several large-scale projects that were expected to be awarded in the first half were postponed to the second half. However, there are many variables in clients' investment decisions and contract schedules, so we will have to wait and see whether they actually lead to awards."


[email protected] Choi Ga-young Reporter