Saudi Fund Considering Boosting Stake in ArcelorMittal JV

(Bloomberg) -- Saudi Arabia’s sovereign wealth fund is considering a plan to inject up to $300 million into a troubled steel pipe factory co-owned by ArcelorMittal, according to people familiar with the matter.

The Public Investment Fund is looking at doubling its stake in ArcelorMittal Tubular Products Jubail to 40 percent by buying new shares and converting debt to equity, the people said, asking not to be identified as the information is private. The final terms of the deal have not been agreed and the plans could change, the people said.

ArcelorMittal established the plant in 2007 as a joint venture with the Al-Tanmiah Company, a unit of the Bin Jarallah Group. At the time, it said the plant would become the biggest supplier of steel pipes to the upstream oil and gas industry in the Middle East, producing over 600,000 tons of pipe a year and employing over 600 people.

However, the financial crisis, the Great Recession and the oil price collapse at the end of 2014 have all weighed heavily on the project, and ArcelorMittal admitted in its annual reports for both of the last two years that “Al Jubail’s financial situation has been negatively impacted by a slower than expected ramp-up of operations.”

In 2016, ArcelorMittal wrote the value of its equity investment down to zero. It continues to hold a stake of 40.8 percent in the venture. ArcelorMittal has also partially written down additional investments made in the form of shareholder loans to the joint venture. At least some of those loans are due for repayment this year, according to ArcelorMittal’s financial statements.

ArcelorMittal’s stake won’t be affected by the debt-for-equity swap, two of the people said.

The PIF wants to use the ArcelorMittal plant to build Saudi Arabia’s position as a supplier of pipes for the energy sector as part of its plans to support non-oil industries, it said in a strategy document published last year.

The PIF is at the center of Saudi Arabia’s efforts to diversify revenue away from oil under an economic transformation plan known as Vision 2030. The government has said it wants to transfer ownership of Saudi Aramco to the fund, along with the proceeds of the planned initial public offering of the oil giant. As such, if Aramco matches the valuation expectations of Crown Prince Mohammed bin Salman, PIF could eventually control more than $2 trillion in assets.

As of today, PIF has assets worth about $150 billion in listed Saudi companies, including stakes in companies such as Saudi Basic Industries Corp. and National Commercial Bank.

Spokesmen for the PIF and for ArcelorMittal declined to comment. Al Tanmiah and its parent group Bin Jarallah Holding didn’t respond to calls and emails seeking comment.

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