Saudi mega steel project eyes local, global banks for $4.5bn investment

Industry observers anticipate the $4.5 bn project to emerge as a torchbearer for the new wave of Indian investments in KSA following the two countries’ decision to give a major boost to investments by the private sector in each other’s market at a high-level bilateral meet in Delhi on Monday

Essar Group, the infrastructure-to-energy Indian conglomerate, will go ‘glocal’ to raise funds to part-finance its upcoming $4.5 billion green integrated steel plant in Saudi Arabia – Green Steel Arabia (GSA), billed as amongst the largest Indian investments in the Middle East in recent times, the company chief executive said.

The Group has mandated Al Rajhi Bank (ARB), the leading Saudi bank, to assist it in raising funds from a clutch of local banks and financial institutions, including the Saudi Industrial Development Fund (SIDF).

Simultaneously, it has also opened negotiations with European Export Credit Agencies and some of the international banks to raise a portion of the funding required for the mega steel project.

The Indian Group is also scouting for local partners for the project, and is expected to soon commence talks with some of the leading funds, including sovereign funds and companies in the country to offer a significant minority stake in the steel project.

The fast-paced developments come amidst many industry observers anticipating the $4.5 billion project to emerge as a torch bearer for the new wave of Indian investments in Saudi Arabia in the wake of the two countries’ decision to give a major boost to investments by the private sector in each other’s market at a top-level bilateral meet in Delhi on Monday.

Separately, at a huge gathering of businessmen from both countries in Delhi on Monday, the trade ministers of Saudi Arabia and India also offered ‘all possible assistance’ to promote private sector bilateral investments across a range of identified sectors.

Essar will set up the state-of-the-art 4.0 million tonne (MTPA) integrated flat green steel complex and a port facility in Ras Al-Khair Industrial City in Saudi Arabia.

ARB to tie-up local funding in Saudi

“The project cost, estimated at around $4.5 billion, would be funded through a combination of project financing facilities and equity,” Naushad Ansari, Country Head for Essar Group in Saudi Arabia, told Arabian Business.

“Al Rajhi Bank has been engaged to raise project financing for the project. They have expressed confidence to raise project finance from local Saudi Banks, with SIDF as the anchor project finance provider,” Ansari revealed.

He said the SIDF application has already been submitted, and it is currently conducting the due diligence of the project.

“Preliminary discussions have also been initiated with several other potential KSA providers of project finance,” Ansari said.

The company chief executive also disclosed that the Group has also simultaneously initiated discussions to raise a portion of the project finance from European Export Credit Agencies supported by international banks.

“The project will result in a significant foreign investment into KSA,” Ansari said.

Though Ansari did not comment on the issue, sources close to the Group told Arabian Business that ARB may also assist Essar in finding strong local partners for the steel project.

“The Group is open to offer up to 49 percent equity in the company and may rope in either one financially strong partner or a clutch of local partners,” the source, who wished not to be identified, said.

The Indian Group is currently waiting for gas allocation for the project, and once this is granted will commence serious discussions on the partnership front, the source said.

Project implementation to commence in early 2024

Ansari said the integrated steel project, planned in consultation with the Ministry of Industry and National Industrial Development Center, has been conceived to replace substantially all existing imports and provide steel for the Kingdom’s growth aspirations.

“Our project is currently in advanced stages of planning and execution, with construction start planned for early 2024. Land for the project and dedicated berths have been allocated,” he said.

Ansari also said the project will be set up using the most modern technology, which will enable production of a wide range of grades and high-quality flat steel products, including auto grade flat steel products which are in high demand in Saudi Arabia.

“The tendering process for the technology has been concluded and we, along with our consultants, are currently evaluating offers from major European equipment suppliers,” Ansari said.

He said the proposed technology configuration would result in one of the lowest carbon emission levels for a mega steel complex, and a plan is being developed to further reduce carbon emissions to sub 0.5 tons of carbon per ton of steel through Carbon Capture Utilization Sequestration and Renewable Energy from a global average of 2 tonnes.

Industry sources said the Essar project, being implemented at a time when Saudi Arabia is pouring in hundreds of billions of dollars to expand its manufacturing and non-oil sectors in a big way, will be looking at achieving a very high rate of – almost 80 percent – import substitution of flat steel products into Saudi Arabia initially, which will gradually be upped to become a totally captive project for the local market.

Company seals raw material supply pacts for the project

Essar has already completed most of the raw material supplies for its mega project, with the Group announcing on Tuesday signing a pact with Desert Technologies (DT), an independent solar PV and smart infrastructure holding company, to develop renewable energy solutions for its green steel project complex in Saudi Arabia.

Late last week, it announced entering into a partnership deal with Brazilian mining major Vale International, a wholly-owned subsidiary of Vale SA, to supply iron ore agglomerates for the Green Steel Arabia (GSA) project.

Last month, the Group partnered with Foulath subsidiary, Bahrain Steel for supply of 4 million tonnes of DR-grade pellets per annum (mtpa) for the Saudi project.

Source: Arabian Business