Construction Firms Face Stricter Labor Regulations... "Focus Should Be on Export-Oriented Companies" [Click e-Stock]

Government Strengthens Stance on Preventing Fatal Industrial Accidents
Yellow Envelope Act Passes National Assembly
Long-Term Positive Effects Expected, But Short-Term Risks Rise

With the passage of the "Yellow Envelope Act" (amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act) in the National Assembly, concerns are rising over increasing labor risks within the construction industry. In the short term, there are expectations of more frequent domestic project delays and higher cost burdens. As a result, some analysts suggest shifting investment focus toward export-oriented construction companies.

On August 26, NH Investment & Securities stated that, under these circumstances, it is more reasonable to favor export-oriented construction firms over those focused on the domestic market. This is because stricter penalties for industrial accidents and the passage of the Yellow Envelope Act are likely to cause disruptions to domestic projects.

The government has demonstrated a strong commitment to eradicating fatal industrial accidents. On July 29, President Lee Jaemyung delivered a stern criticism of POSCO E&C’s repeated accidents this year during a cabinet meeting. On August 9, he also ordered direct presidential reports for all fatal industrial accidents. In addition, a special bill proposed by the Democratic Party of Korea, which would impose a penalty amounting to 3% of annual sales in the event of a fatal accident, is scheduled for review in a relevant National Assembly subcommittee.

Going forward, as the credibility criteria in construction capability evaluations are strengthened, safety management is expected to become directly linked to competitiveness in winning contracts. The construction capability evaluation is a system that publicly discloses a comprehensive assessment of construction performance, financial status, technical capability, and credibility, enabling clients to select appropriate construction companies.

The Yellow Envelope Act is also expected to have a negative impact on domestically focused construction companies. Construction projects typically involve a general contractor (prime contractor) working with multiple subcontractors and sub-subcontractors. The passage of the Yellow Envelope Act has established a foundation for expanding negotiations between prime and subcontractors. While this may lead to fewer safety accidents and more stable labor relations in the long term, in the short term, there are risks of increased strikes, project delays, and higher cost burdens.

NH Investment & Securities expressed concerns about significant potential risks for HDC Hyundai Development Company and DL E&C. HDC Hyundai Development Company faces prolonged litigation due to building collapses in 2021 and 2022, while DL E&C is exposed to risks stemming from fatal accidents at its subsidiary, DL Construction.

Lee Eunsang, a researcher at NH Investment & Securities, stated, "We consider Hyundai Engineering & Construction our top pick, given its global competitiveness in nuclear power plant orders based on its collaboration with Westinghouse in the United States." He added, "Key factors to watch include whether Hyundai Engineering & Construction will enter the large-scale nuclear power plant market in the United States and how the corporate value of its partner, U.S. nuclear company Holtec, will be evaluated upon its potential listing."

On the 6th, Min Byungduk, chairman of the Euljiro Committee of the Democratic Party of Korea, and committee members inspected the highway construction site of POSCO E&C in Gwangmyeong, Gyeonggi Province, where a worker suffered serious injuries and fell unconscious on the 4th.

On the 4th, a male worker in his 30s of Myanmar nationality, Mr. A, went down to check a malfunctioning underground pump and was electrocuted, resulting in cardiac arrest and being transported to the hospital. Yonhap News