Libya geopolitical risks challenge STX

STX Group, Korea’s shipping and shipbuilding conglomerate, is seeking to win Libya’s huge energy infrastructure projects, which company officials said could be worth up to $10 billion.

STX Group officials said STX Heavy Industries signed a memorandum of understanding on building energy, steel desalination and other facilities in Libya’s northern region of Tobruk early last month. The group became the first Korean company to tap projects in the post-civil war region.

A spokesperson for STX said that discussions are at an early stage as it only recently signed an MOU with the Libyan government, and the company has not yet detailed any project financing plans.

However, it remains to be seen whether the group still has the financial firepower to fund projects, given market speculation of its low liquidity, which reportedly led it to decide to sell STX OSV, the group’s shipbuilding unit constructing offshore and specialized vessels.

Also, the group has been affected by the global slowdown in the shipbuilding and shipping industries. Its operating profit dropped about 15 percent to 62 billion won ($55 million) at the end of 2011. It has cash and cash equivalent of 233 billion won in 2011, down from 459 billion won a year ago, according to financial statements.

Industry sources said it is too early to praise its Libya plan, and there has been too much hype and too rosy an outlook of Libya’s post-civil war opportunity in infrastructure.

Caution still needs to be applied as geopolitical risks remain in the region where Libya does not yet have a top decision-maker who can finalize a budget for any projects, the sources said.

The country’s budget, which heavily relied on lucrative oil money in the pre-civil war period, will most likely prioritize spending on welfare projects such as housing after it establishes a democratic government, they said.

Libya plans to hold a national election in the latter half of this year, and a presidential election next year. But there are no guarantees that Libya will make a smooth transition in the near future, they said, pointing to Iraq and even South Korea as an example, the sources said. Iraq is still struggling to make a transition, and it took more than 30 years for Korea to establish a democratic government.

They said companies eying Libya will have to take these unpredictable variables into account, and may need to come up with their own cash to engage in future projects. Also, non-binding MOUs could turn out in the end as no deals especially in this part of the world, they said.

One source pointed out that even before the civil war, Korean construction and engineering companies financed projects in Libya through state-run financial companies such as the Export-Import Bank of Korea and Korea Trade Insurance Corp.

Daewoo Engineering & Construction and Hyundai Engineering & Construction were notable Korean players in Libya before the civil war, a sector analyst said.

STX’s subsidiary STX Heavy Industries recently secured funds from Standard Chartered Bank to finance plant construction in Iraq.

(Source: The Korea Herald)

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