Korea Construction Giants Ride Oil Boom

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From Standard & Poor's Equity Research

Nam's favorite Korean construction companies include GS Engineering & Construction, which in August won a $1.8 billion contract for refinery construction work in Egypt. GSEC's overseas order book has risen dramatically in recent years, and in 2007 it became the company's largest source of revenue. Nam estimates the company's overseas revenue will reach 2,900 billion won ($3.15 billion) in 2009, compared with just 500 billion won ($545 million) in 2004.

Other companies to benefit include Samsung Engineering, builder of the $4 billion Burj Dubai Tower. In the first half of 2007, Nam says, Samsung's new overseas orders rose by 87% to $2.5 billion, and the company expects second-half orders to be close to $3 billion, more than four times their level in the second half of 2006. Most of its overseas work is in Saudi Arabia, but it is also working on large oil or petrochemical projects in Mexico, India, and Thailand.

GSEC and Samsung have won the second- and fourth-largest overseas orders, respectively, for Middle Eastern petrochemical plants in the year from June, 2006, to May, 2007. Another Korean construction company, Daelim Industrial, ranks eighth on the list.

Reaching the International Contractors

Contracts will be awarded soon for one of the largest projects in the region, the $14 billion Al-Zour refinery in Kuwait, which will double the country's refining capacity. Fluor has the management contract, but the actual work has been split up into several different packages, each of which will be bid on separately. GSEC, SK Engineering & Construction, Hyundai Engineering & Construction, and Hyundai Heavy Industries have all been prequalified as bidders.

Exposure to Korea can be obtained through the iShares MSCI South Korea ETF (EWY), or the Matthews Korea Fund (MAKOX) and the Fidelity Advisors Korea I Fund (FKRIX).

While Korean companies probably have the largest share of the Middle Eastern construction market compared with other countries, they are not the only ones working there. Fluor (FLR), KBR (KBR), and TECHNIP (TKPPY) all rank in the top 10 among international contractors, according to Engineering News & Record, and all have substantial orders from the Middle East and have shares that trade in the U.S.

Scully is a reporter for Standard & Poor's Editorial Operations .