$5bn Gulf steelmaker planned

Islamic investment bank Gulf Finance behind company to acquire existing, build new plants, mines.
$5bn Gulf steelmaker planned
By John Irish and Summer Said
Wed 23 Jul 2008 10:51 PM

A Gulf consortium is to set up a $5 billion steelmaking firm to meet soaring construction said on Wednesday.

HadeedMENA would start operations in the fourth quarter with a projected initial capacity of 8 million tonnes of steel per year for the next four years, Gulf Finance, an Islamic investment bank, said in a statement.

"There is a huge opportunity for steel as the demand is soaring in this part of the world and we are capitalising on this," Hisham Alrayes, head of venture capital at Gulf Finance, told newswire Reuters by telephone from the Bahraini capital, Manama.

HadeedMENA, which Gulf Finance is setting up with five partners, plans to build new plants and acquire existing ones to meet a long-term goal of 12 million tonnes per year of steel production capacity, Alrayes said.

"Once the board of the company approves a set of acquisitions it is negotiating now, we could begin production soon after," he said.

"We are looking for iron ore mines, could be in Libya, India and parts of Yemen and for downstream we are generally looking for the Gulf region," Alrayes said.

An iron ore plant producing one million tonnes per year would be worth between $600 million and $1 billion, said Alrayes, who expects HadeedMENA to complete its first deal by year-end.

Demand for steel is soaring in the Gulf Arab region, including Bahrain, where economies are booming on a more than six-fold rise in oil prices since 2002. Government and private investors are pouring billions of windfall oil revenues into infrastructure, real estate and industry.

The region's major steel producers are trying to meet demand through capacity expansion. Saudi Basic Industries Corp (SABIC) said last year it would raise steel output at its unit Saudi Iron and Steel Co - currently the Gulf region's biggest steelmaker - to 6.5 million tonnes per year by 2010.

Qatar Steel Co, a unit of Industries Qatar, has also said it aims to double steel production to more than two million tonnes per year by 2012.

HadeedMENA, which could sell shares to the public as it expands, expects to begin production at its own plants within two years, although the firm was likely to complete acquisitions sooner, Alrayes said.

Demand for iron and steel in the world's biggest oil-exporting region could surge 30 percent to 19.7 million tonnes this year, according to Gulf Organisation for Industrial Consulting, a stakeholder in HadeedMENA.

The steel producer would initially raise $1.25 billion in equity from its founding partners and via a private placement, Alrayes said.

"The rest will be from other investors and leveraging... we are considering an IPO, but deciding where to float the company depends on the partners," he said.

Other partners in the venture are Abu Dhabi-based Emirates International Investment Co, Khaleej Development Co, Qatar Islamic Bank affiliate QInvest and First Energy Bank.

The total value of civil projects in the Gulf region is estimated at around $1.5 trillion, and demand for housing is expected to soar on robust population growth, particularly in Saudi Arabia, analysts have said.

Globally, consumption of reinforcing bars hit 218 million tonnes last year with the Middle East and Asia accounting for 65 to 70 percent of this.

In May, Gulf Finance, which is also building energy operations in places like Libya, said it would start a $2 billion cement company. (Reuters)

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