South Korean government-backed company Construction Guarantee has signed preliminary agreements with two UAE-based banks in an effort to support South Korean firms looking to capitalise on the anticipated construction boom in the GCC.

With Dubai’s successful World Expo 2020 bid and the 2022 Fifa World Cup to be hosted by Qatar, South Korean construction firms are eager to win the rising number of contracts on offer.

Abu Dhabi Islamic Bank and Emirates NBD have both agreed to memorandums of understanding (MoUs) with the South Korean guarantee agency. Under the terms of the agreement, the local banks can provide contracting facilities such as performance bonds and bid bonds to a wide range of South Korean contractors who are clients of Construction Guarantee.

The banks already have established relationships with some top-tier Korean construction companies, but they will now be able to work with more South Korean firms, including mid-tier companies, by working with Construction Guarantee. 

The South Korean agency’s counter guarantee will reduce the local banks’ risk exposure to Korean construction firms.

“This partnership will help expand our client’s reach with the South Korean construction sector,” Faisal Lalani, head of institutional and international banking at Emirates NBD, tells MEED.

“[It will] broaden the range of companies we can work with in South Korea,” he says.

Lalani says the agreement with Construction Guarantee is ready to be implemented as soon as South Korean clients start to pick up contract awards.

South Korean companies are already very active in the Middle East, working on a number of megaprojects and bidding for many others. They are bidding for construction work on the UAE’s Etihad Railway, with awards due in the first half of 2014.

In mid-December, South Korea’s Hyundai Heavy Industries (HHI) won work on Al-Zour North, Kuwait’s first private power and water plant.

Construction Guarantee’s expansion in the GCC will support its plans to diversify its business model out of the domestic Korean market. A report released in November by US ratings agency Fitch noted that the agency had a “high business concentration risk” in the domestic construction sector, which leaves it vulnerable to South Korea’s economy.

The agency did however reaffirm Construction Guarantee’s Insurer Financial Strength rating of A with a stable outlook, noting the company’s plans to expand overseas.

Since 2009, South Korean contractors have won more than $123bn-worth of work in the Middle East and North Africa (Mena) region, according to regional projects tracker MEED Projects.

Almost $42bn of that was awarded in Saudi Arabia, the most active process plant project market in the region. Five South Korean firms have won contracts in the kingdom totalling almost $42bn between them since 2009, and the vast majority of this work has been won in the process plant market.