x Abu Dhabi, UAEWednesday 17 January 2018

Emirates Steel in $2.2bn loan deal

Emirates Steel Industries has secured US$2.2 billion (Dh8.08bn) in one of the largest fund-raising deals of the year.

Emirates Steel Industries has secured US$2.2 billion (Dh8.08bn) in one of the largest fund-raising deals of the year. The company, which controls a majority of the country's steel market with output of 2 million tonnes per year, will get $1.7bn from banks and Islamic institutions and $500 million from an Italian export credit agency in partnership with its parent, the Abu Dhabi Government-owned General Holding Corporation.

The loans will fund two stages of expansion projects that will increase output to 3 million tonnes by late next year, from 600,000 tonnes last year, said Stephen Pope, the chief financial officer. A total of $600m of the funds will cover day-to-day operations, including sourcing raw materials. "The long-term financing currently being finalised ($1.6bn) means that these expansion plans are fully financed," Mr Pope said. "Emirates Steel will have secured long-term debt with local, regional and international Islamic and conventional lenders to support its long-term manufacturing operations in Abu Dhabi." The pricing of the deal "matches the cost of financing that we targeted", he added.

The funds replace a $500m bridging loan the company has relied on for the past year that matures by the end of this month. Emirates Steel, based in Musaffah, is in the middle of a $2.3bn expansion programme that will increase the amount and variety of products the company makes and vertically integrate its operations to control nearly every stage of the steel-making process from iron oxide pellets to delivery of re-bar to construction sites.

The company announced last week that the expansion projects and improvement in UAE steel market conditions had allowed it to increase output by 45 per cent in the second quarter compared with the same period last year. Eighty per cent of the company's output is sold on the domestic market - mainly Abu Dhabi - while the rest is exported to other GCC states, Jordan, the Indian sub-continent and east Asia.

Since last year, the company has weighed a third-stage output increase, either through acquiring a rival company or constructing a new integrated steel plant at Taweelah, near the Dubai border. The company was reported last year to have made an offer to buy Shadeed Iron and Steel, based in Sohar, Oman, but has made no reference to the deal in months. Expansion plans were still at too early a stage to arrange financing, Mr Pope said. "We are currently at the feasibility stage for our expansion projects," he said.

"Financing decisions will be taken once we have finalised our expansion strategy." @Email:cstanton@thenational.ae