- Signed binding agreement to sell 38% stake in POSCO E&C
to PIF (Saudi SWF)
- Improves capital structure,
profitability and business stability through KRW1.2tn investment
- Entry into Saudi Arabia's
construction market worth c. KRW100tn
- Involves technology transfer and training of engineers
& technical staff in Saudi
Arabia
SEOUL, South Korea,
July 2, 2015 /PRNewswire/ -- POSCO
signed a Share Purchase Agreement ("SPA") with the Public
Investment Fund ("PIF") of Saudi
Arabia for sale of POSCO E&C shares. The transaction
brings in KRW1.24 trillion of foreign
investment into Korea.
Photo - http://photos.prnewswire.com/prnh/20150629/226451
On June 15, 2015, POSCO Chairman
Kwon Oh-joon and PIF Secretary
General Abdulrahman M. Al Mofadhi
officially signed the SPA for 38% stake in POSCO E&C
(10,802,850 shares owned by POSCO and 5,083,694 new shares to be
issued by POSCO E&C) at POSCO E&C's headquarters in Incheon
Songdo, Korea. The investment gives PIF a right to appoint two
board members in POSCO E&C's board.
At the ceremony, POSCO's Chairman cited an Arab proverb, "Choose
the right companion ahead of a long trip," and emphasized the historical background
and significance, saying, "The
origin of our country name, 'Korea'
as we are known today in the western world, can be traced back to the Arab merchants
who sailed all the way to Korea's Beokran Island, which is only 50
kilometers away from where we are standing now." He added, "I
think the reason POSCO and PIF could join hands today to look
forward into the future together also takes roots in this history
of more than 1,000 years of friendship."
The agreement comes after 9 months of preparations -- due
diligence and negotiations -- since receiving an Indicative Offer
from PIF in the end of August 2014.
In March 2015, the two companies also
signed a Memorandum of Understanding ("MOU") on strategic
cooperation in Riyadh, the capital
of Saudi Arabia, when President
Park visited Saudi Arabia and
three other nations in the Middle
East. During the visit, President Park expressed strong
interest
in the partnership, and the
government's active support in leading to the successful signing of
the SPA is cited as the most meaningful outcome of the presidential
visit.
Despite numerous challenges, POSCO and PIF succeeded in reaching
to the agreement based on mutual trust and strong commitment to the
collaboration.
Established under a Royal Decree,
the PIF invests into Saudi
Arabia's key manufacturing and infrastructure businesses and
owns the largest a investment portfolio in Saudi Arabia. PIF currently reports to the
Commission of Economic Development ("CED") under the Council of
Ministers, CED is responsible for
overseeing the economic development of the Kingdom.
This investment will enable POSCO E&C to achieve its twin
goals of improving its capital structure and establishing a
transparent management system adhering to global standards. POSCO
E&C has been focusing on deleveraging efforts over the past 3
years, and the proceeds from the new share issuance to PIF will
improve the company's capital structure, hopefully leading to
improved credit ratings. With the two PIF appointed directors
scheduled to take board seats, POSCO E&C will have a rare
chance to become a private company to improve management
transparency and operating efficiency to meet the best in global
standards.
The two companies also intend to establish a Joint Venture
("JV") in Saudi Arabia and jointly bid for key national
construction projects in sectors such as railways, urban
infrastructure, hotels and architectural projects. This will be a
mutually beneficial arrangement since both POSCO E&C and Saudi
JV will secure profitability and stability from such projects while
the Saudi JV will receive additional benefit in form of technology
transfers from POSCO E&C which translates into improved
capabilities within the Saudi construction sector in due
course.
The Korea-Saudi Arabia JV is referred to as the start of the
"Middle East Market Development 3.0" for Korean companies. The 70s
and 80s marked the low-risk, low-margin "Middle East Market
Development 1.0" where Korea provided low-cost labor, and
1990-2000s was marked the high-risk, high-margin "Middle East
Market Development 2.0" where Korean construction companies
provided EPC (Engineering, Procurement and Construction) services.
POSCO pioneered a new business model of low risk and high margin
through a JV with a local player, marking the start of "Middle East
Market Development 3.0."
POSCO is also looking to identify and pursue new opportunities,
such as ICT (Information and Communications Technologies) and IPP
(Independent Power Plant) and this relationship with PIF could help
this initiative.