The Korea Overseas Infrastructure & Urban Development Corporation (KIND) has booked losses of more than 40 billion won ($29 million) on a large overseas petrochemical plant project into which it poured more than 60 billion won in public funds, promising returns of 10%. The agency failed to detect the sudden insolvency of its local partner and came close to exiting the project with just 80 million won, or 0.1% of its investment.
Data on overseas project management that KIND submitted to the office of Rep. Yoo Sang-bum of the People Power Party, a member of the National Assembly's Land, Infrastructure and Transport Committee, showed on the 6th that confirmed losses of at least 40 billion won are expected from the Poland PDH/PP plant project, in which KIND decided to invest in 2019.
KIND and Hyundai Engineering took equity stakes in the project, which involves building a facility to produce 400,000 tons of polypropylene a year, along with supporting infrastructure, in the Police area of Poland. It drew attention as the first investment project for KIND, which was launched in 2018, and as the largest petrochemical plant construction project in Poland.
At the time of the investment, KIND put the expected internal rate of return at 10.0% and judged the project economically viable. The agency said it estimated long-term polypropylene prices and took into account construction and operating costs as well as financing terms. KIND had initially planned to source cheap Russian propane gas overland, but the war between Russia and Ukraine forced a switch to U.S. supplies shipped by sea at higher transport costs. Critics say the agency considered only a single scenario built on low-cost Russian gas, without accounting for geopolitical risk and supply chain diversification, both basic considerations in plant investment.
The agency's on-site monitoring also proved flawed. KIND reportedly did not learn of the local client's financial troubles until the company abruptly filed for rehabilitation and bankruptcy with the court. It then received a humiliating wind-down offer from Orlen, Poland's largest state-run refiner, to give up its rights in return for just 80 million won, equivalent to 0.1% of KIND's claim. KIND later continued negotiations with Orlen with support from government diplomatic channels and recovered 12.3 billion won in immediate repayment.
KIND has agreed to recover an additional 20.9 billion won if the project operates normally, but normal operation remains uncertain. The agency invested a total of 82.2 billion won in the project, consisting of 7.2 billion won in equity and 75 billion won in subordinated loans, and now faces the prospect of failing to recover more than half of that. In its analysis of projected settlement figures for this year submitted to the National Assembly, KIND acknowledged that impairment losses of 43.7 billion won to 62.4 billion won are expected from the Poland PDH/PP plant project. KIND said it has secured additional recovery rights through active negotiations with the restructuring entity, adding that it expects to recover about 41% of the investment principal and will continue negotiating.
Yoo said the investment failure stemmed from blind faith in a single supply line and from leaving the sudden bankruptcy unattended, calling for a fundamental overhaul of the risk management system for overseas investments.
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