Emirates Steel Industries (ESI) plans to hire an additional 600 workers and diversify into new steel products after securing another financing deal last week, worth US$1.1 billion (Dh4.03bn). The money, from seven conventional banks and two Islamic finance institutions, is part of a broader $2.2bn financing arrangement to develop the next expansion phase of the steel company's plant in Musaffah, which is expected to be finished in 2012.
The completion of this phase will include the construction of two more rolling mills as well as additional capability to make heavy steel products such as girders for bridges and buildings. "When these transformations are complete we will move from being a simple re-roller of steel into a manufacturer - the only business making steel in the UAE," said Stephen Pope, the chief financial officer of ESI. "It will be a big, big difference."
ESI is one of a new crop of state-backed companies aiming to chart the emirate's industrial course to diversify from oil and gas revenues. The industries often rely on cheap energy inputs into their business models and include the production of petrochemicals and aluminium, as well as aerospace manufacturing. ESI's fund-raising activities are believed to represent the only steel project financing since the onset of the global downturn, when other companies in the industry such as the giant ArcelorMittal, based in Luxembourg, put expansion plans on hold. "We are in a volatile, cyclical industry and believe downtime is the time to build," Mr Pope said.
The $1.1bn came from conventional banks the National Bank of Abu Dhabi, Union National Bank, First Gulf Bank, Bank of Baroda, Arab Banking Corporation, Al Khaliji France and Al Khalij Commercial Bank (Al Khaliji). The two Islamic finance institutions are the Abu Dhabi Islamic Bank and Al Hilal Bank. Another $500 million was loaned by HSBC and tied by a guarantee from SACE, the Italian export credit agency.
ESI's main product is rebar, the volatile price of which reflects its status as a commodity. By moving into heavy steel sections, the company should take on more bespoke, custom orders in the construction industry, including material for towers and oil and gas rigs. The company's focus on girders coincides with the growing use of heavier steel sections in architecture for glass-walled buildings. Those that rely on girders are faster to build and offer more flexible design options than buildings with rebar-reinforced concrete walls, Mr Pope said.
The company controls 55 per cent of the UAE's rebar market, up from 15 per cent about two years ago. It also exports to countries such as Jordan, Saudi Arabia, Bahrain, India and markets in the Far East. The growth in its domestic market share was achieved during the global financial crisis and the bursting of the UAE's construction industry bubble, and involved ESI beating slightly cheaper Turkish steel imports.
"We had to work very hard but we were successful," Mr Pope said. Local construction companies found it easier to buy any quantity they wanted from ESI, rather than lodge bulk orders with Turkish steel companies for delivery two months away, he said. @Email:firstname.lastname@example.org