Saudi Al-Ittefaq Steel eyes Q4 IPO, expansion

INITIAL OFFERING: Al-Ittefaq Steel Products had a turnover of $773 million in 2007. (Getty Images)

Al-Ittefaq Steel Products Co, one of Saudi Arabia's three largest steel producers, hopes to sell a 30 percent stake in an initial public offering in the fourth quarter of 2008, its top financial executive said.

"We will float 30 percent stake... We will decide after the valuations whether to go for a capital increase or sell only existing shares," Chief Financial Officer Shabir Rafiqi told Reuters in a telephone interview.

The firm has mandated Gulf International Bank as lead manager and financial adviser for the IPO. The bank holds a 2.3 percent stake in the company.

The Al-Tuwairqi family holds a stake of about 77 percent in Ittefaq through a holding company.

The company had a turnover of 2.9 billion riyals ($773.3 million) in 2007 and its net margin stood at about 8-9 percent, Rafiqi said.

The IPO could take place in the fourth quarter, subject to regulatory approval, he added.

"We want to use proceeds of the IPO to help fund projects in the pipeline and our expansion plan in the years to end-2012. We have identified expansion projects worth approximately $2 billion," Rafiqi said.

The projects consist mainly of melt shops, direct reduction plants and flat products plants, he said.

"We are also looking at iron ore mining in India and possibly Brazil and Australia," he said. "We want to have a complete integration and become a global player in steel industry".

The firm expects to start this year a rolling mill in the Red Sea city of Jeddah with an annual capacity of 1.2 million tonnes, he said. "Now we produce 2 million tonnes which will increase to 3 million tonnes with the Jeddah plant," he said.

It also hopes to start next year a 1.5 million tonnes direct reduction iron plant in Karachi, Pakistan, he added.

Al-Ittefaq competes with Hadeed, a unit of Saudi Basic Industries Corp. (SABIC) and the kingdom's largest steel producer, as well as with Al-Rajhi Steel Industries. Saudi Arabia has a production capacity of about 8.4 million tonnes.

Prices of steel have almost doubled over the past two years as demand has outpaced supply in Saudi Arabia, where the government and the private sector are spending billions of riyals on infrastructure and housing projects.

Rafiqi said demand had nearly doubled in four years.

The rise in steel prices and increases in other input costs have raised fears over the viability of some projects.

Prices started to decline recently after a government ban on scrap metal exports and as spiralling costs hit demand growth.

"Prices are now down by about 8 percent from their peaks of 2008... This is a simple adjustment in prices," Rafiqi said. "For the rest of the year, an 8-15 percent adjustment is possible, not more than that." (Reuters)

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