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Public Works Attract Investors

Pension Funds Find Payoffs in Construction Projects

July 10,2001
Local financial institutions and pension funds are becoming increasingly interested in investing in private-sector public works construction projects such as roads, tunnels, ports and subways.

At a time when the yields on government bonds and interest rates on bank deposits hover around 7 percent, investors are finding such projects attractive because they can expect toll and fee incomes that the government sets at an annual average of 14 percent to 16 percent for using those public facilities.

Making such investments even more attractive, the government began this year to guarantee private investors up to 90 percent of return rates it offered, in order to reduce investment risks. The government also offers to make up for possible losses from inflation higher than 5 percent.

The most active investors in public works projects are pension funds. The Military Mutual Aid Association, which manages pension funds for soldiers, has acquired two tunnels in the city of Taegu for around 70 billion ($53.9 million) each and is considering investing in a project to build another tunnel in Seoul.

The Government Employees Pension Corp. plans to invest a total of 200 billion won in building toll roads, tunnels and bridges and is waiting for the government's approval. Organizations managing teachers' pension funds have also requested the government to allow them to make similar investments.

"Considering what the government has offered to us, it would take just about 10 years to recover the investment principal by earning passage tolls," said Lee Jae-seok, an official at the Government Employees Pension Corp.

Insurance companies are also expected to become active investors in social works projects.

"In social works projects led by private-sector companies, construction firms used to borrow money from financial institutions and repay the debts with operating incomes," said Han Kyung-taik, an official at the Ministry of Planning and Budget. "Now, pension funds and insurers will become leading investors in many such projects as a way of their asset management."



by Lee Hyo-joon




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