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POSCO to sell stake in engineering, construction unit to Saudi fund
By Korea HeraldPublished : Feb. 13, 2015 - 19:17
South Korea’s top steelmaker POSCO will sell part of its stake in its engineering and construction unit to Saudi Arabia’s Public Investment Fund, sources said Friday. The two sides also plan to set up a joint construction firm.
According to industry sources, POSCO signed a contract on Thursday with the Saudi state-backed investor to sell 38 percent of its stake in the unit and issue new stocks for some 1.5 trillion won ($1.36 billion).
In a separate provisional deal, they also agreed to build a joint construction company to work closely together on the Saudi government’s large-scale infrastructure projects.
PIF is working with JPMorgan Chase & Co. and Saudi Arabia’s National Commercial Bank on the deal.
POSCO Engineering and Construction plans to use part of the revenue from its sale to fund the joint corporation, a company official said.
“The joint construction firm can be a bridgehead for POSCO to enter the global market and reduce dependence on the sluggish domestic market,” a source said.
The Saudi state-run investment fund, which has been in negotiation to buy stakes in the builder since September 2014, proposed to set up the joint firm in a bid to prepare for the post-oil era.
PIF is one of several investment bodies the Saudi kingdom uses to invest its oil wealth. The fund holds stakes in several listed Saudi companies, including Saudi Basic Industries Corp. one of the world’s biggest petrochemicals maker.
Recently, the world’s second-largest oil producer has embarked on infrastructure projects such as building new cities and railways in response to changes in the energy market. Saudi, which needs advanced construction technical skills to work on the projects, chose POSCO as a partner, according the sources.
Industry insiders expect that the contract would help POSCO E&C to increase its sales in the Middle East market.
“If POSCO E&C sets up a joint corporation with the Saudi government, it will be able to create a new cash cow and low-risk business model with the stable workload from upcoming mega-size Saudi projects,” another source familiar with the matter said.
By Park Han-na (hnpark@heraldcorp.com)
According to industry sources, POSCO signed a contract on Thursday with the Saudi state-backed investor to sell 38 percent of its stake in the unit and issue new stocks for some 1.5 trillion won ($1.36 billion).
In a separate provisional deal, they also agreed to build a joint construction company to work closely together on the Saudi government’s large-scale infrastructure projects.
PIF is working with JPMorgan Chase & Co. and Saudi Arabia’s National Commercial Bank on the deal.
POSCO Engineering and Construction plans to use part of the revenue from its sale to fund the joint corporation, a company official said.
“The joint construction firm can be a bridgehead for POSCO to enter the global market and reduce dependence on the sluggish domestic market,” a source said.
The Saudi state-run investment fund, which has been in negotiation to buy stakes in the builder since September 2014, proposed to set up the joint firm in a bid to prepare for the post-oil era.
PIF is one of several investment bodies the Saudi kingdom uses to invest its oil wealth. The fund holds stakes in several listed Saudi companies, including Saudi Basic Industries Corp. one of the world’s biggest petrochemicals maker.
Recently, the world’s second-largest oil producer has embarked on infrastructure projects such as building new cities and railways in response to changes in the energy market. Saudi, which needs advanced construction technical skills to work on the projects, chose POSCO as a partner, according the sources.
Industry insiders expect that the contract would help POSCO E&C to increase its sales in the Middle East market.
“If POSCO E&C sets up a joint corporation with the Saudi government, it will be able to create a new cash cow and low-risk business model with the stable workload from upcoming mega-size Saudi projects,” another source familiar with the matter said.
By Park Han-na (hnpark@heraldcorp.com)
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Articles by Korea Herald
