Race is on for Al-Rajhi Steel

12 July 2011

Firm needs to get financing in place for steel plant in 12 months to avoid getting its gas allocation revoked

After years of planning and design work, plans to build a $3bn steel plant at the King Abdullah Economic City (Kaec) are finally coming to fruition.

Key to this has been getting a gas allocation for the project, which will give Al-Rajhi Steel the feedstock it needs to move ahead with the scheme. However, that brings its own issues. The gas allocation can be revoked in about 12 months if the financing for the project is not in place. The company now faces a race against time to get financing in place for the project.

It seems unlikely that the government would be so rash as to pull the gas allocation for Al-Rajhi

In the past, the government has been willing to give extra time to companies that have made significant progress on completing their fundraising. Given how liquid the local banking sector is, getting some form of commitments out of them should not be too difficult.

But Al-Rajhi Steel will also have to do an initial public offering (IPO), which could face delays from getting approvals from the Capital Market Authority, to getting the timing right for the market.

It is unclear if the project company will also be expected to have made significant progress on the IPO within the next 12 months. It is unlikely that the gas allocation will get revoked, and that is not the reason why it is right for this project to move forward so quickly.

The scheme is a strategically important one for Kaec and also for the whole of the kingdom. Saudi Arabia desperately needs to create more private sector jobs, and the economic cities are supposed to be a key part of that goal.

The Arab uprisings have made Saudi Arabia sensitive about issues around employment and quality of life. This sort of large industrial project is exactly what the kingdom needs to diversify its economy and create more jobs.

Because of that, it seems unlikely that the government would be so rash as to pull the gas allocation for Al-Rajhi. That should not stop the firm progressing on the project as fast as it can.

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