The value of overseas construction orders to Korean contractors exceeded US$30 billion for the fourth year in a row in 2023. Korean builders’ target for 2024 is US$40 billion. They have been looking for opportunities in overseas markets as the Korean real estate market has been slumping for a long time. However, as overseas business has increased, the accounts receivable risk has also increased. It is not uncommon for large Korean construction firms to file lawsuits because they have not received payments from overseas clients.
According to the International Contractors Association of Korea (ICAK), Korean construction companies posted US$33.3 billion in overseas construction orders in 2023. Since 2020, overseas construction orders to them have remained above US$30 billion won annually for four consecutive years. As the Korean construction market is unlikely to recover this year due to continued high interest rates, construction companies are expected to be more active in seeking overseas orders. The Korean government is also pursuing a goal to increase annual overseas construction orders to US$50 billion by 2027 to make Korea one of the world’s top four construction powerhouses.
Sometimes, Korean builders do not secure profits after completing construction abroad. This is because some overseas clients delay payment or refuses to pay by unreasonably finding fault with construction results. International arbitration is useless if a client’s country does not recognize it. There is no guarantee of success in a local court case. The country’s laws are not favorable to foreign companies.
As a result, Korean construction companies are accumulating accounts receivable from overseas construction sites. Lotte E&C and POSCO E&C participated in the construction of Vietnam’s Da Nang-Quang Ngai Expressway which opened in September 2018, but have yet to receive about 20 billion won in payment. The contractor, Vietnam Expressway Corporation (VEC), has not paid them after the completion, claiming that they found defects in the construction. The International Chamber of Commerce (ICC), a Singapore-based international arbitration organization, ruled in favor of Lotte E&C and POSCO E&C, but the Vietnamese Embassy in Singapore refused to accept the ICC’s arbitral judgment.
Hanwha E&C also failed to receive payment for the Bismayah New City Project in Iraq. The builder won the contract to build the Bismayah New City in 2012 and the infrastructure project in 2015, but the project was suspended in October 2022 due to a lack of funds from the Iraqi side. By then, the accumulated account receivables reached US$629 million. Hanwha E&C resumed work in December 2023 after receiving US$230 million of the outstanding receivables, but it was not a complete resumption. It is only finalizing some remaining parts of the existing contract.
Overseas business-related lawsuits also increase costs. Hyundai E&C reflected 50 billion won in litigation costs in its fourth-quarter earnings in 2023. This was related to the construction of the 70-story Lusail Plaza Tower in Doha, Qatar. As a result, Hyundai E&C’s operating profit for the fourth quarter of 2023 fell below market expectations to 144.5 billion won.