Asia infrastructure bonanza unlikely to pay off soon

Analysis

MELBOURNE (Reuters) - Massive infrastructure spending plans announced across Asia and Australia are unlikely to get past the drawing board anytime soon, doing little to arrest economic slumps and leaving construction and building materials companies to languish.

The multibillion dollar plans will probably have to be whittled down as tax revenues fall and debt-laden developers struggle for financing, and could be delayed by government upheavals and squabbling between central governments and local officials.

Worse yet, as private sector developments slow down, competition for government projects is likely to intensify, shrinking profit margins on the work.

Australia, China, Korea, Thailand and Taiwan have flagged they want to spend a total of $660 billion on building new roads, rails, ports, broadband, housing, schools and hospitals to create jobs and help stave off recessions.

"It's nice to promise these things, but actually delivering through to spending it is a different matter," said Brent Mitchell, research manager at Shaw Stockbroking in Melbourne.

He pointed to endless consultations by Australia's Labor government, and states fighting each other for priority, as likely to delay projects.

In Thailand, where the government has flagged 1.6 trillion baht ($45 billion) for infrastructure between 2009 and 2011, political instability has held up projects for years.

"As political uncertainties make government policies incoherent, we don't have any hope that mega projects will happen soon under a new government," said Kavee Chukitkasem, head of research at Kasikom Securities in Bangkok.

In China, the government announced a 4 trillion yuan ($582 billion) stimulus plan last month, targeting earthquake reconstruction, housing, roads, rail and airports, to be spent over the next two years.

Spending the full amount might be tough, as a portion of the money would have to come from local governments, whose revenue from land sales has dropped as property prices slide, said Wang Jun, an analyst at BOCI Securities in Shanghai.

In Australia, the government wants to spend A$41 billion ($26.5 billion), but analysts estimate it might fall A$14 billion short of that target as tax revenue dwindles.

In Korea, analysts said falling tax revenue could trim the final figure on the government's pledge of 4.6 trillion won ($3.1 billion) on infrastructure in 2009.

Doubts about these projects materializing and stretched finances for building groups are hitting share prices of firms which had been most expected to benefit from any infrastructure boom.

STRETCHED THIN

Analysts question whether Korean construction companies will be able to cash in on the bonanza, as banks are curtailing lending to builders due to worries about their financial health.

More loans are going sour and interest burdens are mounting. The outstanding amount of real estate-related project financing at South Korean financial firms soared 46 percent over 18 months to 73 trillion won in June.

Those that do survive to bid on new projects are likely to face slimmer profits on their projects.

"As the home market remains weak, competition will increase for government projects and margins will fall," said Hyo S.Yim, an analyst at Daiwa Institute of Research in Seoul.

Those fears are reflected in the share prices of engineering groups like GS Engineering & Construction (006360.KS), which has lost about 41 percent of its value in the past three months, and Samsung (000830.KS), off 37 percent in the same period, underperforming a 28 percent slide in South Korea's benchmark KOSPI index .

In Thailand, where the most advanced project, the 36-billion baht Purple mass transit line, was to open for bids this month, analysts expect delays after Prime Minister Somchai Wongsawat was forced out and his party disbanded for electoral fraud.

Shares in companies seen likely to win the work, like top contractor Italian-Thai Development ITD.BK, Ch Karnchang CK.BK and Sino-Thai Engineering and Construction STEC.BK, have all fallen harder than Thailand's benchmark stock index .SETI over the past three months.

In Australia, top building contractor Leighton Holdings Ltd (LEI.AX) has tumbled 56 percent over the past three months, while contractor Downer EDI (DOW.AX) has dropped 52 percent, or double the slide in the broader market .AXJO in that period.

China's construction and building materials groups are the standouts in an otherwise hard-hit sector across the region.

Firms such as China Railway Construction Corp (601186.SS)(1186.HK), cement maker Anhui Conch (600585.SS)(0914.HK), and machinery firm Sany Heavy Industry Co (600031.SS), have all beaten a 14 percent slide in the Shanghai Composite index .SSEC.

But struggling U.S. heavy equipment makers active in China such as Caterpillar Inc (CAT.N) and Deere & Co (DE.N) aren't expected to get a huge sales boost from Beijing's stimulus plan, as new projects may only partially offset the impact of slowing economic growth nationwide.

(Reporting by Sonali Paul in Melbourne, Michael Wei in Beijing, Khettiya Jittapong and Arada Therdthammakun in Bangkok, Kim Yeon-hee Kim and Rhee So-eui in Seoul, Lee Chyen Yee in Taipei; Editing by Kim Coghill)