Saudi Fund Signs MOU to Invest More Than $1 Billion in Posco E&C

Saudi Arabia’s Public Investment Fund agreed to buy more than $1 billion worth of shares in South Korean steelmaker Posco’s engineering and construction unit.

The sale will be finalized in the first half of the year, Posco said in an e-mailed statement Wednesday, without disclosing the number of Posco Engineering & Construction Co. shares. Posco E&C’s over-the-counter shares closed at 68,000 won in Seoul, giving it a market capitalization of 2.5 trillion won ($2.3 billion), according to data compiled by Bloomberg.

The deal will help Posco boost its finances and secure new areas of growth, the company said in the statement, adding that it was also considering a joint venture with the Saudi fund for infrastructure projects and car businesses. Posco is seeking to establish a carmaker under its Daewoo brand together with the Saudi government, the Maeil Business Daily reported today.

“This news won’t have a significant impact on Posco’s shares tomorrow until the company gives more specific news about the deal,” Baek Jae Seung, an analyst at Samsung Securities Co., said by phone from Seoul. Still, the agreement to invest in infrastructure is “positive,” he said.

PIF is one of several investment bodies Saudi Arabia uses to invest its oil wealth. The fund holds stakes in several listed Saudi companies, including Saudi Basic Industries Corp., one of the world’s biggest petrochemicals makers.

Posco’s sales this year will be “tight” as declining raw material costs will push down product prices, the company’s head of finance and investment division, Lee Young Hoon, said at an investor briefing in Seoul last month. The steelmaker will cut its 2015 capital spending to 4.2 trillion won from 5.4 trillion won in 2014, Posco said.

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