[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 Structuring

In July, Four Additional Projects From the U.S. Department of Energy and Five From the Department of Agriculture

For nearly 50 years, Korea's overseas construction sector has primarily revolved around contract work: building exactly to someone else's designs and collecting payment for the construction. Once the project owner determined the project, construction companies would compete for the work by submitting the lowest bid possible. This was the foundation of the so-called “Middle East construction boom” of 1976, but it also led to significant failures—in 2015, the sector suffered multi-trillion-won losses in the Middle East due to fierce price competition and repeated project delays.

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 Korea Overseas Infrastructure & Urban Development Corporation (KIND), declared, “That era is over.” He emphasized, “We need to move beyond simple construction contracts. By integrating capital productivity with labor productivity, we should proactively discover, complete, and operate new business ventures—continuing to secure operational revenue from them.”

The United States government has recently been introducing a series of investment development-type projects to Korea. Typically, projects of this type involve over 2,000 pages of English-language contracts to review, and it can take up to two years—following a thorough feasibility study—to finalize how to proceed. In January this year, the Korean government was offered three projects from the U.S. Department of Energy (focused on lithium-boron, potassium, and graphite), and within six months, a memorandum of understanding (MOU) was signed for the lithium-boron plant project. Following this, in July, the United States proposed an additional nine projects—four from the Department of Energy and five from the Department of Agriculture. President Kim commented, “When we signed the deal in July for the project proposed in January, the U.S. was surprised by our speed.” He added, “As we continue engaging with investment development-type projects, the scale of Korea’s overseas construction capabilities will continue to grow.”

KIND, under the Ministry of Land, Infrastructure and Transport, is Korea’s only state-owned public developer dedicated to overseas investment development projects—withstanding initial costs and risks that are too high for the private sector to shoulder alone, while strategically planning high-quality overseas projects. At the outset, the government injects capital as equity into projects so that KIND can directly secure the position of project owner, ultimately ensuring strong opportunities for Korean businesses or onboarding them as co-investors. Now in its ninth year, KIND has already delivered 40 successful projects and, including its fund activities, boasts a cumulative investment record of approximately 100 projects across 25 countries. At the ministry-hosted briefing last month, KIND itself set the stage by publicly introducing the U.S.-proposed projects for the first time to over 40 domestic companies. Using his hands to create an image of different levels, President Kim explained, “Up until now, we’ve mainly occupied this level—just construction. Now, we must move up to the higher level, becoming project owners and investors.” The following is an edited 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 often said that entering the U.S. infrastructure market is particularly difficult. Why is that?

▲The basic barrier to entry is extremely high. Each state has strict construction licensing and registration requirements, and even with the required licenses, it is virtually impossible to win contracts in the United States without a credible local track record. Strict labor and environmental regulations add further hurdles.

-Given these high barriers, why is the U.S. government proactively proposing projects to Korea?

▲The answer lies in reversing the perspective. Think about it: If a foreign minister visited Korea, would the Korean government simply hand them a domestic PPP project and say, “Why don’t you try this one?” That almost never happens. The fact that the United States is actively introducing quality projects and inviting us to participate would be impossible without a deep foundation of trust between the two governments. The U.S. wants strategic participation from allied nation capital as part of its effort to diversify supply chains for critical minerals and other resources. In fact, the U.S. government is offering to fund half of project costs with ultra-low interest loans. For the lithium-boron plant, which is a two billion dollar project, the Department of Energy is supplying one billion dollars in loans at an interest rate of SOFR (Secured Overnight Financing Rate) plus 35 to 40 basis points (0.35 to 0.4 percentage points). By comparison, the Export-Import Bank of Korea adds 250 to 300 basis points. With SOFR in the 4% range, a loan from the EXIM Bank would total above 7% interest—whereas this particular deal is still around 4%. If anything were to go wrong, the U.S. government would face substantial losses, not just us. This is not a case of Korea absorbing all the risk: both the U.S. government and KIND participate, creating a solid safety net and making failure highly unlikely.

-Why are public-private partnership and foreign capital projects on the rise overseas?

▲It’s because of fiscal constraints. Governments in the U.S. and the Middle East have many domestic priorities. Relying solely on public financing for major infrastructure like roads, ports, or airports places a significant burden on the budget. Therefore, they seek to attract private capital. Private business operators invest their own money and, in exchange, receive the right to operate facilities for 20 to 30 years. In the case of airports, the government may receive a share of operational profits. For the government, this reduces the immediate fiscal burden while still delivering needed infrastructure, which is why these types of projects continue to grow.

-How do investment development-type projects differ from conventional contracts?

▲In investment development-type projects, construction is just the lowest tier. The main project owner is a special purpose company (SPC). Above the SPC, there are equity shareholders, and alongside are lending groups that provide loans. The typical ratio between equity and loans is 2:8 or 3:7. KIND assumes the role of a shareholder.

-What changes when KIND becomes a shareholder?

▲Shareholder representatives participate in the board of directors and hold voting rights proportional to their equity shares. Stakeholders are involved from the planning stages: they may propose bringing one of our companies on board, or decide to refuse participation entirely. It's not necessary to handle only construction. Participation can be limited to engineering or equipment supply, or extend to operations management.

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?

▲Domestic developers can absolutely participate as equity investors and project owners. I recently met Hanmo Kim, Chairman of the Korea Developer Association (and Chairman of HM Group). Since he was already undertaking development in the U.S., I asked, “Why did you go to the U.S. alone? Why not collaborate with KIND?” If we had joined forces, KIND could have provided equity and shared in the risk. We have a triple-A credit rating and experience working with the Asian Development Bank, International Finance Corporation, and the Export-Import Bank of Korea, so we’re familiar with raising capital, negotiating English contracts, and working with local financial institutions. Chairman Kim has made overseas expansion a key part of his platform and is keen to broaden his investment interests beyond real estate into sectors such as energy and power generation. For large-scale overseas urban development projects, even if one cannot manage an entire project from the start, it is possible to participate as an equity investor by investing in development parcels. When I suggested exploring such collaboration one step at a time, he was enthusiastic.

-Will KIND always rely on government funding going forward?

▲No. Currently, we are in a transitional phase where cash inflows do not yet match investments. Investment development projects require extensive capital up front, but after 5 to 7 years, operating profits typically reach the break-even point, and after 10 years, significant cash reserves begin to accumulate. While loan repayments slow income generation in the early years, these projects are fully self-sustaining in the medium to long term. While conventional construction yields operating margins of just 3% to 5%, investment development-type projects return 10% to 20%, and urban development projects can reach up to 20%. If KIND provides initial capital and seizes the initiative in large projects, once these projects hit their stride, they generate self-renewing resources for a self-sustaining ecosystem. This is a reliable and productive way to increase the nation’s wealth.

-As investment development-type projects increase, will the status of our government also change overseas?

▲Absolutely. In the past, when a Korean minister visited overseas, they would have to plead with project owners for Korean companies to win contracts. We had to ask for favors. Now, we can approach these opportunities as investors by saying, “Do you have any projects in need of investment? KIND is prepared to contribute.” Instead of playing the role of a contractor asking for business, Korea is stepping up to become a true project owner in the international construction market.

▲Born in 1968 in Gwangmyeong, Gyeonggi-do ▲Graduated from Guro High School ▲Bachelor’s degree in Economics from Sungkyunkwan University ▲38th Civil Service Examination ▲Master’s and Ph.D. in Geographic Information Systems (GIS) from the University of Leeds, UK ▲Minister Counselor for Land, Infrastructure and Transport at the Korean Embassy in the UAE ▲Director of Urban Planning at 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 Director of the Innovation City Development Task Force at the Ministry of Land, Infrastructure, and Transport

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