Middle East leads rally in nuclear plant orders
South Korean firms with expertise in building power plants and less exposure to house building are set to be the big gainers in a global construction boom fuelled by Middle East oil revenues.
Shares in Korean builders have risen to 18-month highs on the back of a series of mega projects such as last month's $40 billion (Dh146.8bn) nuclear plant deal in the UAE won by a Korean consortium.
Korean builders signed a record $49bn in deals last year, up three per cent from 2008, with the Middle East accounting for 73 per cent of that total, up from 57 per cent a year earlier. Asian deals accounted for 22 per cent. That tally excludes the big UAE deal to build and operate four nuclear reactors by 2020, which has yet to be signed.
"Overseas construction orders are expected to rise, led by oil producing countries in the Middle East and North Africa, as well as some Asian countries with healthy budgets," said Tae-yup Kim, an official at South Korea's International Contractors Association.
"Considering the UAE deal and other potential deals, we expect Korean builders to win $74bn of overseas deals this year," Kim said.
The group that won the UAE deal is led by state-run Korea Electric Power Corp (KEPCO), along with Hyundai Engineering; Construction, Samsung Corp and Doosan Heavy Industries. They expect to earn a combined $6bn from the project, one analyst noted.
The prospect of a rebound is welcome news after the global economic crisis triggered widespread project suspensions, cancellation and delays. Korean builders won only $13.1bn worth of deals in the first half of last year.
The South Koreans are winning deals increasingly on competitive pricing, helped by the fact that the local won currency has firmed less than the yen and euro, and a reputation for getting the job done.
One industry source said the $20bn Korean bid for last month's UAE project was $16bn lower than a rival French-led group's offer. In addition to the deal to design and build the plants, the Koreans expect to double the value of the deal by jointly operating the reactors for 60 years.
The South Korean government calculates the unit cost of building a Korean reactor is $2,300 per kilowatt, versus $2,900 for a French or Japanese model and $3,582 for a US-built reactor. An improving track record helps, too.
"At the very beginning, it was hard to win a global deal as (people) had little knowledge of us. Now they know we are good at successfully meeting or even shortening, construction schedules," said Suk-yoon Kang, a spokesman at Samsung Engineering.
Thermal boom
The order boom this year is expected to be led by thermal power projects that were delayed in the recession, while economic growth in the Middle East, Africa and South America will boost power demand and deliver orders from oil producing states enjoying crude prices that have doubled to over $80 a barrel from a year earlier.
This year's big thermal power projects include $30bn worth from Saudi Arabia, $10bn from the UAE, $7bn from Kuwait and $5bn from Brazil, said Seong-jin Byun, senior analyst at Mirae Asset Securities. Another senior analyst, Heung-ik Song at Daewoo Securities, said: "Led by Saudi Arabia, Kazakhstan and the UAE, billions of dollars of big thermal power projects are likely to be issued."
"Many Japanese firms face growth maturity. Major Korean builders are likely to see their multiples rise more as they are expanding businesses into European rivals' markets," said Seong-jin Byun, senior analyst at Mirae Asset Securities.
He noted that South Korean builders are gaining ground in the Middle East, with around a 20 percent share of the total $200bn of deals. Hyundai Engineering is seen as a strong contender to win upcoming power projects, given its know-how in nuclear, thermal and co-generation plants, analysts said.
The nuclear market, forecast to hit $1 trillion by 2030, is a hot prospect too for KEPCO, which aims to win 10 reactor deals by 2020. It has been in talks with Turkey to export reactors there.
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