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Korean Builders to Feel Little From Dubai Shock

Posted December. 01, 2009 08:24,   


Despite the debt moratorium declared by Dubai World, most Korean brokerages say Korean builders have a positive business outlook for next year.

Daewoo Securities and Hyundai Securities said before the Dubai shock that construction is a promising industry for investment next year, and appear to stick to that opinion despite the Dubai shock.

Shares of Korean construction companies including Hyundai Construction, GS Construction, Samsung C&T Corp. and Samsung Engineering rose more than three percent yesterday, after plummeting for two consecutive days.

Just a few Korean builders have large projects with high risk in progress in Dubai. Chief researcher Park Yeong-do of LIG Investment & Securities said, “The activities of large Korean construction companies in the Middle East mostly involve plant construction rather than real estate development. Therefore, exposure to the Dubai shock is low.”

In addition, other factors are expected to lead to more plant orders in the Middle East for Korean construction companies.

MEED Project, a think tank on construction and economy in the Middle East, said plant orders in six Gulf Cooperation Council nations including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar will exceed 200 trillion won (172 billion U.S. dollars). Of that amount, Korean companies are expected to secure plant orders worth at least 142.1 trillion won (122 billion dollars) next year.

Song Heung-ik, chief researcher at Daewoo Securities, said, “The number of orders for plants for oil refining, gas and petrochemicals will continue to rise primarily because of consistently high oil prices. Second, the number of plants for generating green energy such as electricity, combined cycle power and nuclear energy will increase in riding the global trend of green growth.”

“As long as the price of oil stays at 50 dollars a barrel, Korean construction companies will continue to receive many overseas orders.”

The possibility of higher diversification of overseas orders is another factor backing the optimistic outlook for Korean builders despite the Dubai shock.

For example, projections say Southeast Asian nations that suffered a sharp decline in orders this year will place more orders next year. In addition, large construction projects are expected in Brazil, which will host the 2014 World Cup and 2016 Summer Olympics.

Kang Seung-min of NH Investment and Securities said, “If demand for orders increases in oil-rich Southeast Asian nations from next year, it will help diversify the overseas orders of Korean construction companies.”

Daeshin Securities and LIG even advised investors to buy construction stocks when their prices are revised in the aftermath of the Dubai crisis.