Korea launches fund class to support overseas contractors
South Korea plans to launch specialist private equity funds as a means of encouraging financial institutions to support local firms competing for overseas construction contracts. The government hopes that $8.6 billion can be raised through these funds by 2017, contributing 10% of overseas project costs.
As an added incentive, state-run policy banks would absorb losses ahead of private financial institutions participating in funds if portfolio projects turn sour. There are also promises of currency risk management support, trade-related insurance and loan guarantees.
"Right now, Korean overseas construction and plant contracts rely too heavily on simple outsourcing projects. Therefore, we are developing ways to offer customized financial support in order to change those outsourcing projects into builder co-financing arrangements and investment development type projects that follow recent global trends," Deputy Prime Minister Oh-seok Hyun told a ministerial meeting on international economic affairs.
The move comes after a government task force reviewed the role of policy-based lending in a more challenging global economic environment. This includes strengthening the role of state-backed lenders in offering support to start-ups, venture firms and small and medium-sized enterprises that boast high growth potential but limited access to commercial banks.
Local builders have been struggling to win contracts overseas due to intensifying competition. According to Yonhap News Agency, overseas construction and plant exports grew 3.1% year-on-year in the first six months of 2013. Average annual growth over the previous five years was 9.7%.
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