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    Daewoo E&C feared to face perfect storm

    10 Feb 2018

    Daewoo Engineering and Construction (E&C) grabbed headlines this week as the builder is expected to face losses of up to $400 million in its $1.8 billion project building a coal-fired power plant in Morocco.

    But sources said Friday that this might not be the end of the story because it is feared Daewoo could experience further unexpected losses in other Asian and African countries.

    The Seoul-based company has sealed various construction deals in Asia and Africa over the past several years, especially in the Middle East.

    'Daewoo has completed many construction projects in Asia and Africa and some are currently under way,' a source said. 'In particular, it has focused on the Middle East.

    'Many are afraid that accidents like the Morocco case may happen any time soon, that it might bring a perfect storm to the company.'

    Indeed, Daewoo E&C has carried out more than 15 construction projects in Asia and Africa since the late 2000s under former CEO Seo Jong-uk.

    The amount of the contracts is well over $10 billion. If any of the deals go awry, the damage could be severe, as the Morocco incident demonstrates.

    'Seo stressed overseas business,' the source said. 'Under his leadership, Daewoo set up the engineering department to win contracts in such countries as Nigeria, Libya, Algeria, Morocco and Papua New Guinea.

    'I don't think that any of the deals would be profitable. Worse, if accidents like the one in Morocco should happen again, the company would find itself in big trouble.'

    Daewoo is building a power plant on the Moroccan coast, 15 kilometers south of Safi, but heating facilities broke during recent testing.

    The faulty facilities are designed to heat water to enhance the efficiency of the power generation system.

    Daewoo included about $300 million in its fourth-quarter balance sheet in anticipation of this. But observers worry that the overall loss may top $400 million.

    The losses prompted Hoban Construction not to purchase the controlling stake of 50.75 percent in Daewoo from the Korea Development Bank. Late last month, the state-run bank picked Hoban as the preferred bidder for Daewoo. But Hoban eventually decided to withdraw.

    'Daewoo lacked experience with overseas projects,' the source said. 'But it sought expansion in other countries very aggressively and it's bringing on a backlash now. The firm signed so many engineering contracts that have the potential to cause big losses such as the Safi deal. It should have been more cautious.'

    A Daewoo official said that in the late 2000s and early 2010s, not just Daewoo but the overall industry ventured into global projects.

    'After watching other companies suffer losses from foreign projects, we have substantially beefed up our risk-management system,' the official said.

    'Although the incident with the Safi project has happened, all the projects in other countries will go smoothly.'


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