POSCO E&C has signed a $900 million joint venture with a Saudi Arabian construction company to build a hotel complex near a pilgrimage city of Madinah, officials of the construction company said on Nov. 8.
POSCO and PECSA will work together to build a four-star hotel consisting of 3,070 rooms in five separate buildings, in Madinah Hajj City, a new city currently under construction to serve millions of visitors on their way to Madinah from Mecca, they said.
PECSA is a joint venture established in January by the South Korean engineering firm and the Public Investment Fund, a sovereign wealth fund owned by Saudi Arabia. POSCO holds 40 percent of the shares in the venture, which was set up with capital of $35 million. The project is the first deal between POSCO and PESCA, paving the way for the South Korean firm to expand its business in the Middle Eastern market.
The joint venture between the South Korean and Saudi Arabian companies puts forth a stable business model in a market where many struggle with disputes between ordering companies and subcontractors.
POSCO E&C will also share technological know-how with its Saudi Arabian counterparts to help develop the country’s construction industry. “With our company’s construction management technologies, which differentiate us from the local builders in Saudi Arabia, we will successfully complete the project,” said POSCO E&C CEO Han Chan-gun. The company hopes to complete the project by February 2019.
Madinah Hajj City, located 3 kilometers from the center of Madinah, is being developed on 1.6 square kilometers of land. The construction of the city is expected to cost about $16 billion. It will have facilities such as hotel complexes, offices, subway stations and shopping malls.
According to POSCO E&C, the Saudi Arabian government has been developing Madinah Hajj City, a new town near downtown Madinah, since 2014 in order to offer amenities for Muslim pilgrims, who make their trips from Mecca to Madinah.
After winning the national industrial project of Saudi Arabia for the first time, POSCO E&C and PECSA said they presented a new paradigm of obtaining orders in the Middle East construction markets, where potential risk and tough competition exist.
As the ordering organization and the constructor will mutually invest in the project, POSCO E&C said the construction will be low-risk, high-income, excluding any possible dispute between the ordering organization and local subcontractors, which is common in the Middle East construction market.
POSCO E&C plans to teach its developed construction technologies to Saudi Arabia and support the country's construction industry. The company is also offering a 12-day training session for Saudi Arabian employees of the local joint corporation at its Global Leadership Center in Songdo, Incheon, from Oct. 31.
"Our company will successfully complete this project with our developed construction management technologies and differentiated strategies from local builders in Saudi Arabia," POSCO E&C President and CEO Han Chan-kun stated in a press release. "We will continue to seize chances to win more construction projects in other Middle East countries."
Meanwhile, PECSA seeks to be one of the top five constructors in the Gulf Cooperation Council through 2025, based on POSCO E&C's developed technologies.