Exclusive Interview: Hassan Sha'sha'a

Emirates steel strategy and development vice president Hassan Sha?sha?a

The steel company controls a 45% share of the UAE market for rebar and wire rod. Through a combination of investment and acquisitions, its plans will see its output by volume increase by a huge 325%.

The fact that the company is wholly owned by the government of Abu Dhabi may present the wrong impression of ESI. Sha’sha’a maintains that part of the firm’s mandate from the government of Abu Dhabi is to bring long-term stability back to a steel market that shot from $760 per tonne of rebar to $1540, before slumping back to $440 over a ten-month period last year.

Hence the huge market share that is being targeted.“Part of our mandate is to bring stabilisation to the price,” Sha’sha’a says, “because the way that the prices peaked and troughed last year made for a very difficult investment climate.”

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The firm is actively eyeing the competition, and says it will be making acquisitions in due course. “We believe that the present market conditions are conducive to consolidation in the steel industry,” Sha’sha’a says.

“We will try to acquire companies that are of interest to us, that make sense, that can be integrated into our business plan, and that meet the local demand,” he adds. “Those are the companies that we are eyeing, that are being reviewed seriously, and in due time our management will make a decision on such acquisitions.”

ESI chairman HE Hussain Al Nowais makes no bones about such plans for expansion, and agrees that the time is right for consolidation. “We can benefit from economics of scale,” he explains, “provided that our acquisitions fulfil our strategy and have an economic value. We want to be market leaders.”

Demand
Some have expressed fears regarding the uncertainty of steel demand in the wake of the construction slowdown in some parts of the country. Among them is Gulf Organization for Industrial Consulting industrial promotion unit head Ismail Elshafei.

“It is too early to say whether it is wise for steel facilities to expand, he warned. “I would not want to risk a prediction.”

However, ESI dismisses such fears and remains bullish about the coming 12 months and beyond. “It is not an issue of being optimistic, but an issue of doing your homework,” Sha’sha’a says.

“We know what projects have been issued and each one of these will require a set amount of steel. There is going to be a continuous healthy demand for steel, at least in the short- to medium-term.”

This belief is partly fuelled by ESI’s confidence in the local Abu Dhabi market. Of the total steel produced by the plant today, around 95% is for domestic consumption, with around 60% of this being sold within the Emirate of Abu Dhabi.

“We know what projects have been issued,” Sha’Sha’a says, “for example, we have the two big museums on Saadiyat Island, the Khalifa Stadium, the new airport, Masdar City, and roads like Al Salam Street.

“Masdar City will require 1.5 million tonnes, while Al Salam Street will require 300,000 tonnes. When we add up all these projects we see that there will be a continuous healthy demand for steel at least in the short- to medium-term.”

With such ambitious expansion plans, the obvious question is one of funding. Just where does the cash come from to finance a $2.45 billion expansion whilst economies the world over contract?

ESI chief financial officer Stephen Pope reveals how. “Though we are owned by the government we operate purely commercially,” he says. “Phase one is financed by a consortium of seven regional and international banks.

“Phase two will be financed through a similar arrangement. We are working with our banking group to consolidate our debt into long-term project finance.”

Market share
Along with the physical investment ESI will be looking to recruit UAE nationals at all levels of the business. It currently employs 133 nationals, up from just 33 in 2006. All things considered, the expansion of the firm is going to see the UAE profit from its own developmental aspirations.

“Our market share is growing at the expense of imports,” Sha’sha’a says. “We are contributing to improve the balance of trade by producing local steel to meet local requirements.”

This is no bad thing for the UAE. The status of ESI as a government-owned firm, openly expressing its desire to buy up the competition while tripling its output, may project it as a company that has an unfair advantage. Abu Dhabi has taken the decision to fuel its own developmental furnace over the coming years, but not necessarily at the expense of free trade.

It is reinvesting its accumulated petrochemical dollars in a robust, internationally competitive steel industry that will create jobs and bring with it security of supply for the long-term future. Protectionist – maybe. Others would simply call it sound business sense.