By Lee Hyo-sik
POSCO is having a hard time pushing ahead with multi-billion dollar business ventures with Saudi Arabia after the prosecution launched a criminal probe into its construction arm over the alleged creation of a slush fund.
The world’s third-largest steelmaker had initially planned to sign a contract with the Saudi government by March to sell a stake in POSCO Engineering & Construction (E&C) to the latter and establish a joint construction company.
However, the plan has been put on hold, according to POSCO officials. Many expect that the Middle Eastern nation has and will likely take a wait-and-see attitude until the ongoing investigation into POSCO E&C comes to an end. POSCO owns an 89.5 percent stake in the construction company.
“Nothing has been decided concerning our joint ventures with the Saudi sovereign fund,” a POSCO spokesman said. “Although things have been delayed lately due to non-business, external factors, we are confident that in the end we will be able to do what we planned with Saudi Arabia.”
POSCO Chairman Kwon Oh-joon said in late March that it would be difficult for the steelmaker to move forward ventures with Saudi Arabia as initially scheduled. Kwon’s remarks were seen as evidence that the Middle East country became reluctant to conduct business with the steelmaker after the criminal probe into POSCO E&C began.
However, the chairman said the Saudi government would not back away from the deals it signed with POSCO, stressing that both parties have built a strong future-oriented relationship.
During President Park Geun-hye’s visit to Saudi Arabia in early March, POSCO signed an agreement with the Public Investment Fund of Saudi Arabia to sell a 40 percent stake in POSCO E&C to the fund, a deal valued at more than $1 billion.
Both sides also agreed to establish a joint construction venture in the Middle Eastern country.
During a shareholders’ meeting on March 13, Kwon said the company would sign a formal contract with the Saudi sovereign fund before the end of March.
However, on the same day, POSCO E&C was raided by prosecutors over suspicions of creating a slush fund worth about 10 billion won abroad, which has made it uncertain whether the joint ventures will materialize.
On March 13, the Seoul Central District Prosecutors’ Office began the probe by raiding the headquarters of POSCO E&C in Songdo, Incheon, after the builder found in its audit in February that two of its executives and a dozen employees generated an illicit fund worth in Vietnam.
The builder allegedly inflated the payments to its subcontractors and later reimbursed them with rebates from 2009 to 2012. Former POSCO Chairman Chung Joon-yang and former POSCO E&C Vice Chairman Chung Dong-hwa, who have been barred from leaving the country, will soon be summoned for questioning.