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GFH to set up $5b steel firm

New company to have 8m tonnes capacity yearly
The Kingdom-based Islamic investment bank and its second largest company by market value, Gulf Finance House yesterday said it was setting up a $5 billion steel company with production facilities across the Middle East and North Africa region and Asia to cater to the spiraling demand for the construction material in the region.

The steel maker, HadeedMENA would have an initial capacity of 8 million tonnes per year for the next four years, which will be enhanced to 12 million tonnes capacity in the future, serving 15 per cent of the total regional needs to become one of the key steel producers in the MENA region.

The plans for the creation of regional steel giant come close on the heels of Gulf Finance House 's $2 billion cement company, Cemena with multiple units across the Middle East and North Africa region to feed the region's construction boom.

GFH is partnering with Emirates International Investment Company , a privately-owned regional holding company, Khaleej Development Company , regional real estate major, Q-Invest , Qatar's first Islamic investment bank, First Energy Bank , the world's first energy-focussed bank and leading technical partners and market advisors M.N. Dastur and Gulf Organisation for Industrial Consulting for the steel venture.

The company would adopt a three-pronged approach to ground the project - acquisition of existing steel plants, partnerships with steel units ready for launch besides building new plants.

"We are looking at several acquisitions and the first one is likely to be announced by November," the Gulf Finance House chairman Esam Janahi told presspersons yesterday, after announcing the launch of the regional steel maker that aims to capture 10 per cent market share of the regional steel sweepstakes.

The company is currently in the final negotiation stages for a number of partnerships and acquisitions and will have an initial base of $1.25 billion in terms of equity, sourcing it through private placements taking advantage of the steady cash flow. Asked if the company was open to the idea of an IPO, Janahi replied in the affirmative but said it was not mission critical'.

"An IPO requires lot of approvals. We do not want to stop. We are eager to go ahead taking advantage of the private placements and put the project on stream without losing time," he affirmed.

HadeedMENA will operate in a number of locations across Asia and Africa, serving both upstream and downstream requirements in the marketplace. Upstream production will be located in countries rich in iron ore and coal, while downstream activity will focus on countries with exceptionally high demand across the GCC and MENA region.

"We have identified India, Libya and Yemen as promising arenas for upstream activity and the GCC markets for downstream activity," Janahi said. "We intend to differentiate ourselves by taking a 'top to bottom' approach to the value chain. It will focus both on upstream productions for steel billets as well as the downstream manufacturing for steel re-bars and structures."

It is estimated that the Middle East alone accounts for more than $2 trillion of investments in the construction and real estate sector as a result of the surplus created through high oil prices. The MENA region consumes approximately 35.4 million tonnes of steel end products, although the region produces only around 24 million tonnes.

Dr Ahmed Al Muttawa of Gulf Organisation for Industrial Consulting said steel prices in the Middle East were the highest in the world. In 2007, steel consumption was 24 million tones while the production was a mere 14 million tones. "The supply gap was filled by imports from Turkey and CIS nations. Though the projected steel production capacity of the region was tipped to become 32 million by 2012, the 10 to 12 million tonne gap is bound to persist given the construction boom sweeping it," he pointed out.

Demand for iron and steel in the world's biggest oil-exporting region could climb more than 30 per cent to 19.7 million tonnes this year alone, according to the Gulf Organisation for Industrial Consulting .

"GCC economies realise that establishing new manufacturing and service capacity will allow them to be far more responsive to their long-term domestic needs. The creation of HadeedMENA is a perfect example of this approach. Instead of being dependent on steel imports, we will now be able to produce this essential product within our own borders."

Commenting on the technical plans of the company, Supriya Das Gupta, the Chairman of M.N. Dastur said, "The plants will adopt the latest technology and manufacturing techniques by partnering with leaders in steel manufacturing and employing the most up-to-date technology and processes."

"Beyond the immediate economic benefits, this kind of initiative has a wide-ranging impact on employment levels and standards of life. Steel production generates a strong pipeline of follow on jobs in engineering, manufacturing, design and support sectors - all of which provide jobs and improved standards of living" said Professor Abdulatif Al Meer, Managing Director of Q-Invest in Qatar.

Founded in 1999, Gulf Finance House has grown rapidly to become one of the most respected investment banks in the Middle East region in terms of the quality and innovation of its product offerings. Over an eight-year period Gulf Finance House has successfully launched economic infrastructure development projects and investments with an aggregate end value exceeding $20 billion.

By K V S Madhav Senior Business Reporter

© Jordan Times 2008