[Interview] "Continuing Investment Development Projects Will Scale Up Korea’s Overseas Construction" [Changing Overseas Construction ⑦]

Interview with Kim Bokhwan, President of Korea Overseas Infrastructure & Urban Development Corporation (KIND)

Three Projects Proposed in January: Lithium, Potassium, and Graphite

MOU Signed for Lithium; Potassium and Graphite Deals Under Str

For nearly 50 years, South Korea's overseas construction industry has mainly focused on contracts to build according to designs provided by others, earning fees for the work. When the client defined a project, construction companies would compete by submitting the lowest bid. This was the model that created the Middle East boom in 1976, but by 2015, due to cutthroat price competition and project delays, Korean companies suffered painful defeats, incurring multibillion-dollar losses at Middle Eastern sites.

Kim Bokhwan, President of the Korea Overseas Infrastructure & Urban Development Corporation, is interviewed by The Asia Business Daily at his office in Yeouido, Seoul. Photo by Kim Hyun-min

During a recent interview at his office in Yeouido, Seoul, Kim Bokhwan, President of the Korea Overseas Infrastructure & Urban Development Corporation (KIND), declared, "This era is over." He emphasized, "We must move toward discovering, executing, and operating projects by combining labor productivity with capital productivity, so that we can continue to generate operational profits even after completion."

Recently, the U.S. government has introduced a series of investment and development projects to Korea. Typically, these investment-development projects can require over 2,000 pages of English-language contracts to review, and it can take up to two years, including a feasibility study, just to finalize the project structure. In January of this year, Korea’s government received proposals for three projects (lithium·boron, potassium, graphite) from the U.S. Department of Energy. Of these, the lithium·boron plant project advanced to a memorandum of understanding (MOU) within just six months. In response, the United States proposed nine additional projects this July — four through the Department of Energy and five through the Department of Agriculture. Kim explained, "Signing a deal on a project they proposed in January by July amazed the Americans with our speed," adding, "The more we pursue investment-development projects, the more Korea will level up in global construction."

KIND, as an affiliated agency of the Ministry of Land, Infrastructure and Transport dedicated to overseas investment-development, is Korea’s only public developer that takes on the initial costs and risks that are difficult for private companies to bear and plans high-quality overseas projects. Government funds are injected as equity at the top of each project, which allows KIND to secure a direct client position, enabling it to hand promising contracts to Korean companies or bring them in as joint investors. Now in its ninth year, KIND has successfully completed 40 projects, and including fund investments, the company’s cumulative track record covers about 100 projects in 25 countries. Last month, KIND was the organization that laid the groundwork and made the first public presentation to around 40 domestic companies regarding the projects the U.S. government had proposed, at a briefing hosted by the Ministry of Land, Infrastructure and Transport. Demonstrating with both hands, Kim said, "This (basic construction) is where we have mostly stayed until now. Now, we need to rise up to the next level (as project owners and investors)." The following is a Q&A.

Kim Bokhwan, President of Korea Overseas Infrastructure & Urban Development Corporation, is being interviewed by The Asia Business Daily at his office in Yeouido, Seoul. Photo by Kim Hyunmin

-It is said that entering the U.S. infrastructure market is especially difficult.

▲Fundamentally, the market barriers are extremely high. Each state has strict construction licensing or registration systems, and even with a license, if you do not have an established local track record, it is almost impossible to win business. Labor and environmental regulations are also stringent.

-Despite such high barriers, what is the background behind the U.S. government proactively suggesting projects?

▲If you look at it from the opposite angle, the answer becomes clear. Even if a minister from another country came to Korea, would our government simply hand over a domestic public-private partnership project and say, "Try this"? It is not easy. For the United States to introduce quality projects and set the table for us would be impossible without a strong relationship of trust between the two governments. The U.S. wants strategic participation of allied capital in order to diversify supply chains for critical minerals and more. The U.S. government even offers loans at ultra-low interest rates, covering half the total project cost. For the lithium·boron plant, the project value is $2 billion, and the Department of Energy provided a $1 billion loan, half of that amount. The interest rate is the Secured Overnight Financing Rate (SOFR) plus 35 to 40 basis points (0.35–0.4 percentage points). In comparison, Korea Eximbank adds 250 to 300 basis points. With SOFR currently at around 4%, borrowing through Eximbank would be over 7%, but this project is at the 4% level. If a project were to fail, the U.S. government would also bear massive losses. We are not taking on risk alone; the U.S. government and KIND are joining forces to provide a safety net, making failure highly unlikely.

-What is the reason behind the increase of privately and foreign-funded projects overseas?

▲It is because of insufficient public finances. Governments, even in the U.S. or Middle East, have a multitude of financial demands for their own countries. Building major infrastructure such as roads, ports, or airports purely with public funds would be a heavy burden. Therefore, they attract private capital. Private entities invest their own money to build facilities, and the government grants the right to operate them for 20–30 years. In the case of airports, sometimes the government receives a portion of the operating profit. From the government’s perspective, this model reduces the initial fiscal burden while securing necessary infrastructure, which is why such projects are on the rise.

-How do investment-development projects differ from traditional construction contracts?

▲In investment-development projects, construction ranks at the very bottom layer. The main entity ordering the project is a special purpose company (SPC). Above that are shareholders providing equity, and then there is a consortium of lenders. The equity-to-debt ratio is usually 2:8 or 3:7. KIND acts as a shareholder.

-What changes when you become a shareholder?

▲The board of directors includes representatives of shareholders, each wielding voting rights proportionate to their ownership. In the project planning stage, we can suggest, for example, “Let’s bring in a Korean contractor—or otherwise, we will not participate.” Full-scale construction is not always necessary. We may only handle design, or only supply equipment. We could even just take on operations.

Kim Bokhwan, President of the Korea Overseas Infrastructure & Urban Development Corporation, is giving an interview to The Asia Business Daily in his office in Yeouido, Seoul. Photo by Kim Hyunmin

-Can domestic real estate developers enter this market?

▲Korean developers can also join as shareholders and participate as owners. I recently met with Kim Hanmo, President of the Korea Developers Association (and Chairman of HM Group). Noting that he was already engaged in development projects in the United States, I asked, “Why did you go to America alone? Why not work together with KIND?” If they had joined us, KIND could have taken an equity stake and shared the risk. KIND has a triple-A credit rating, and, thanks to experience working on projects with organizations like the Asian Development Bank (ADB), International Finance Corporation (IFC), and Eximbank, is well-versed in raising funds, negotiating English contracts, and working with local financial institutions. President Kim set overseas expansion as a pledge when he took office, and he is interested in expanding investment not only in real estate but also in areas such as energy and power generation. For large-scale urban development overseas, if it is difficult to manage the entire project from the start, Korean firms can come in as equity investors on a plot-by-plot basis. When I proposed collaborating in this way, he responded positively.

-Will KIND always need to rely on government investment going forward?

▲Not necessarily. Currently, we are at a transitional phase where our incoming cash is less than the money we have invested. Investment-development projects require large capital injections at the start, but usually, after five to seven years, operating profit surpasses the break-even point, and by the ten-year mark, significant cash begins to accumulate. Due to loan repayments, returns are slow at first, but in the mid to long term, projects can become self-sustaining. While the profit margin for simple contract work hovers around 3–5%, investment-development projects can achieve 10–20%, and urban development projects up to 20%. When KIND catalyzes and takes leadership in major projects, once on track, these businesses generate their own resources and foster a self-sustaining ecosystem. This is a sure, productive investment that creates national wealth.

-If investment-development projects increase, will the standing of the Korean government improve abroad?

▲Absolutely. In the past, when a minister traveled overseas, the role was to ask for help so that Korean companies could win contracts. We were petitioners to the clients. Now, we assertively approach by saying, "Is there a project needing investment? KIND will deploy capital," entering as an investor rather than a subordinate contractor. This shifts Korea’s position in overseas construction upward, from a subcontractor seeking help to the project owner taking the lead.

▲Birthplace: Gwangmyeong, Gyeonggi (age 58) ▲Guro High School ▲BA in Economics from Sungkyunkwan University ▲38th National Civil Service Exam ▲MSc and PhD in Geographic Information Systems (GIS) from the University of Leeds, UK ▲Counselor for Land, Infrastructure and Transport at the Embassy of Korea in the UAE (Ministry of Foreign Affairs) ▲Director of Urban Planning at the Multifunctional Administrative City Construction Agency ▲Railway Safety Policy Director at the Ministry of Land, Infrastructure and Transport ▲Urban Policy Director at the Ministry of Land, Infrastructure and Transport ▲Deputy Head of the Innovation City Development Promotion Team at the Ministry of Land, Infrastructure and Transport

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