Posco E&C receives cash in sell-off to Saudi’s PIF

Posco Group received 1.24 trillion won ($1.05 billion) from the Public Investment Fund of Saudi Arabia (PIF) on Wednesday, ending a sell-off deal that began in August 2014.

The payment finalized the transfer of 38 percent of Posco Engineering and Construction (Posco E&C) to the state-run Saudi fund as part of its efforts to enhance the group’s financial status.

With the deal sealed, the largest shareholder Posco owns 52.8 percent of Posco E&C shares, followed by the PIF’s 38 percent and other shareholders’ 9.2 percent.

Posco E&C and the PIF plan to establish a joint venture called Posco E&C Saudi Arabia that will focus on carrying out state-led infrastructure building projects that include hotels, newly planned cities and railways. Posco plans to cover 40 percent of the cost of the joint venture, while the rest will come from the PIF, the steelmaker said. Beyond the deal itself, the two parties are also considering more cooperation on projects in power generation and plant businesses.

The deal also specifies that two of Posco E&C’s board members will come from local Saudi Arabian officials recommended by the PIF, who will play a role in the company’s management decisions and boost its transparency.

The deal would help both parties, Posco said, by helping the steelmaker expand business in the Middle East, which it hopes will enhance the company’s overall profitability and financial stability. The deal can help Saudi Arabia by introducing more advanced construction technologies and engineering skills through the projects.

Posco Chairman Kwon Oh-joon has been calling for restructuring and the sell-off of less profitable side businesses since taking office last year, saying those are the only ways to rescue the company, which has been hit by low global demand for specialized steel products and oversupply from China.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]