Posco, founded in 1968 as a joint venture between the South Korean government and tools manufacturer TaeguTec, is now the world’s fourth largest steelmaker and South Korea’s third largest private company in terms of market capitalisation. Its reach extends past steelworks to investments in the power and mining sectors, ensuring sufficient supplies of raw materials and energy for its main operations. During 2012 it expanded its presence in emerging markets, closing significant deals in Indonesia, and making progress on the new CHP5 power plant in Mongolia. It also signed the financing for a power plant in its domestic market and won a tender for a new iron ore mine in Australia.

The Wampu run-of-the-river hydroelectric power project, awarded Project Finance’s Asia-Pacific Hydro Deal of the Year 2012 (see page 44 this issue), could act as a catalyst for Indonesia’s power market. With much of the country’s 17,508 islands covered in protected forest, the success of POSCO, along with fellow sponsors Korea Midland Power and Mega Power Mandiri, in developing a project on this type of land without traditional land rights was groundbreaking. With the Indonesian economy growing so quickly, the ability to build new plants on protected land could become very valuable.

POSCO closed another award winning deal in Indonesia in 2012. Its Krakatau POSCO integrated steel mill development, winner of Project Finance’s Asia Pacific Metals & Mining Deal of the Year 2012 (see page 54), attracted new lenders into the country. The $1.7 billion 14-year debt facility also featured export credit agency guarantees, including the largest loan/guarantee package in Kexim’s history. The 3 million tons of steel slab processed by the plant each year will help meet Indonesia’s burgeoning pipeline of infrastructure developments.

Posco has won a reputation for sponsoring benchmark financings in emerging power markets. In August 2011 it closed a $1.95 billion financing for the 1,240MW Mong Duong 2 coal-fired power plant in Vietnam, alongside lead sponsor AES, and China Investment Corporation. It is now working to close the CHP5 combined-heat and power plant in Mongolia. Mongolia’s current 868MW power fleet comprises ageing coal-fired capacity, though it benefits from some limited interconnection with the Chinese and Russian power grids. Mongolia also lacks access to gas, and so its government has embarked on a policy of attracting foreign investment that might lessen its dependence on its neighbouring countries.

CHP5 is the second new power projects being undertaken in the country, after the Salkhit wind farm. POSCO owns 30% of the equity in the development, with Newcorn (10%), GDF Suez (30%) and Sojitz (30%) as co-sponsors. POSCO has been drawn to Mongolia by its rich reserves of metals and other natural resources. Tavan Tolgoi is one of the biggest coal fields in the world with an estimated 6.4 billion in reserves, and the country is also rich in untapped copper and gold deposits. The mining boom which is now underway in Mongolia means extra generation capacity is urgently needed to power these explorations.

Located in Mongolia’s capital, Ulaanbaatar, CHP5 will have a power capacity of 415MW and a steam capacity of 587MW, increasing the country’s installed capacity by 50%. While it will run on coal, it will use three circulating fluidised bed boilers and pollution control equipment that will mean it is more efficient than existing plants, and much cleaner than home-based heating systems. The plant will benefit from a 25-year power purchase agreement with the government and will be feature a debt:equity split of 75:25.

POSCO’s consortium won the project in July of last year, with the Asian Development Bank advising Mongolia’s PPP unit on the procurement. The involvement of Sojitz will allow the project to access debt from Japanese export credit agencies, while POSCO will allow it to attract their Korean counterparts. Construction is expected to be complete in 2015.

Back in Korea, POSCO closed the financing for 834MW Ansan-Si combined cycle gas-fired power project, located in Gyeonggi-Do province, in 2012. Its co-sponsors on the deal are Samchully and Korea South East Power. The lead arrangers on the W617 million ($583 million) debt facility were KDB and Korea finance Corporation, and the debt comprises two 15-year tranches of W310 million and W307 million, respectively. NH Nongyup, Woori Korea Exchange Bank, Kyobo Life Insurance, Samsung fire & Marine, Dongbu Insurance, Allianz Life, Hanwha General Insurance, Hyundai Marine & fire Insurance, Heungkuk Life, KDB Life Insurance, Kiamco BTL Fund and LIG Insurance all joined the syndication. Construction of the plant began last year and is scheduled to be completed in 2014.

POSCO’s most challenging upcoming financing will be the A$10 billion ($10.3 billion) Roy Hill iron ore mine in Western Australia, which is expected to close during the second half of 2013. POSCO is part of a consortium that also includes Marubeni and STX that in March 2012 acquired a 30% stake in the operation from developer Hancock Prospecting. POSCO and STX entered into a A$332 million ($339 million) note with Hancock Prospecting in January 2010, and this was converted into equity as part of the deal, alongside an additional A$3.2 billion of fresh equity. POSCO subsequently sold some of its stake on to China Steel.

Roy Hill has an estimated resource of 2.4 billion tonnes and a proposed annual production rate over 20 years of 55 million tonnes per year. Debt is likely to come from a combination of commercial banks and ECAs. US Ex-Im, BNP Paribas and National Australia Bank are understood to be working on the financing, though the involvement of POSCO and Marubeni means a Korean and Japanese ECA component is likely. The project is now slightly behind its original schedule, due to lower iron ore prices and higher construction costs, which increase lender due diligence. However just before the end of last year the sponsors issued draft term sheet to potential lenders. This year could bring the closing of more benchmark deals for POSCO.