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Hanwha E&C struggles with delayed Bismayah project in Iraq

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Bismayah new town in Iraq under construction / Courtesy of Hanwha E&C
Bismayah new town in Iraq under construction / Courtesy of Hanwha E&C

Hanwha E&C CEO Choi Kwang-ho / Newsis
Hanwha E&C CEO Choi Kwang-ho / Newsis
By Park Jae-hyuk

Hanwha E&C's profitability has worsened for the third straight year, as the builder has continuously failed to get the construction of the Bismayah new city in Iraq back on track, according to market analysts, Wednesday.

Its deteriorating profits have also had a negative impact on the outlook for its parent firm, Hanwha Corp., which holds a 100-percent stake in the unlisted construction company.

According to Hanwha E&C's regulatory filing, first-quarter operating profit dropped 51 percent year-on-year to 16.6 billion won ($13 million), although sales rose 10 percent to 648.6 billion won during the same period.

Last year, the builder's annual operating profit dropped to 180.5 billion won from 295 billion won in 2019.

"Because of Hanwha E&C's lower-than-expected earnings, the performance of Hanwha Corp. fell short of market consensus," Daishin Securities analyst Yang Ji-hwan said, slashing his target price for Hanwha Corp.'s stock by 7 percent to 40,000 won. "As the sales recovery of Hanwha E&C's construction sites overseas is expected to be delayed, it will be difficult for Hanwha Corp. to expect an earnings improvement for a while."

When Hanwha E&C announced 10 years ago that it had won the $10 billion project to build the new town southeast of Baghdad, it initially had planned to finish the construction by 2020.

However, the completion has been deferred to 2027, due to the unstable political situation in the Middle East and delayed payments from the Iraqi government.

After a subcontracted worker with symptoms of COVID-19 died at the construction site in June 2020, the builder halted its work, citing the safety of its employees.

Earlier this year, Iraq's National Investment Commission launched an audit to check the financial soundness of the Bismayah project, further increasing uncertainties about Hanwha E&C's businesses overseas.

Korea Ratings also said in February that continuous monitoring is needed to get Hanwha E&C's Bismayah project in Iraq back on track.

"Growing uncertainties about the Bismayah project may increase the possibility of downgrading Hanwha E&C's credit rating," said Kim Hyun, an analyst at the local credit ratings agency.

If the construction is delayed even after 2027, Hanwha E&C expected its annual net profit to be reduced by 20 billion won every year.

"For the stable completion of the project, we have mutually made efforts with our client, Iraq Reconstruction & Rehabilitation Contraction Commission," the company said in its regulatory filing. "These efforts include our talks about methods for stable payment and the time required for the construction."

Park Jae-hyuk

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