Saudi Arabia’s sovereign wealth fund has created a national champion for the steel industry, while exiting the Kingdom’s leading distributor of liquefied petroleum gas (LPG), National Gas and Industrialization Company (GASCO).

PIF is set to buy the Saudi Iron and Steel Company (Hadeed) from chemicals producer Saudi Basic Industries Corporation (Sabic) for SAR12.5 billion (US$3.3 billion) with completion expected by the end of Q1 2024. For Sabic, the exit will provide a cash injection for its core downstream petrochemicals projects, amid falling margins in an over-supplied market burdened with weak demand.

Hadeed plays a pivotal role in supplying Saudi Arabia’s infrastructure projects, most of which are overseen by PIF which is acting as the vanguard for the Kingdom’s Vision 2030 program to diversify the national economy.

The move came after the announcement in May that Saudi national oil company Aramco, China’s Baosteel, the world’s leading steel conglomerate, and PIF signed a shareholders’ agreement to establish an integrated 1.5 million tonnes per annum steel plate manufacturing complex in Saudi Arabia, utilizing an electric arc furnace. The joint venture complex is expected to be located in Ras al-Khair Industrial City and will be the first facility of its kind in the Kingdom and the GCC region, advancing the regional steel industry ecosystem.

The steel plate complex is supported by the Kingdom’s Shareek program for large companies, which aims to foster greater private-public cooperation, create jobs and enhance the development of the Saudi economy by providing incentives for domestic investment. It aims to bolster the localization of heavy steel plate production, knowledge transfer, and creating export opportunities.

Yazeed A. Al-Humied, Deputy Governor and Head of MENA Investments at PIF, said at the time, “PIF is diversifying the Saudi economy by unlocking opportunities and enabling key strategic sectors in the local market. This partnership aims at establishing an integrated steel plate manufacturing facility that will strengthen Saudi Arabia’s industrial development and enable its role as a supplier within the metal industry. It will also build on PIF’s mandate to establish new strategic partnerships locally and globally; localize technologies and knowledge; enable the private sector; and create more direct and indirect job opportunities in the local market.”

Meanwhile, PIF is selling its 10.9% stake in GASCO for SAR491 million (US$131 million) to the Jadwa Investment Company, with completion expected this week. Eyas Al-Dossari, head of investment advisory in the MENA Investments Division at PIF, said “This transaction comes as part of PIF’s strategy to recycle its capital by selling stakes in mature companies and reinvesting such proceeds in developing new and promising sectors in the local economy. The transaction structure demonstrates the depth of the local institutional investor base in the Saudi capital market.”

Steelmaking plays an important role in the supply chain for PIF’s giga-projects and the sovereign wealth fund is looking to add value in the sector. Last year, PIF signed a MoU with Korean steelmaker POSCO and Samsung C&T to develop a new green hydrogen production plant. POSCO and Samsung C&T signed a Master Service Agreement covering technical development of liquid nitrogen for global green hydrogen production and storage in November 2021. PIF already has a close relationship with the Korean conglomerate. In 2015, the fund acquired a 38% stake in its subsidiary POSCO Engineering and Construction for US$1.1 billion. POSCO E&C is one of the world’s leading global engineering and construction companies that specializes in engineering and building industrial and energy facilities, infrastructure and urban development. The agreement included commitments to strategic plans in Saudi Arabia, such as the establishment of a Saudi engineering and construction joint venture company.

Decarbonization of steelmaking is a high priority globally, but high energy costs are a major challenge. Most steelmakers are already embarking on pilot projects or research projects into creating decarbonized steel using hydrogen. The decarbonization trend will also bring opportunities for the steel sector as end-markets evolve and investment in coal supply declines.

Related funds PIF
Related tags Strategic Funds