CAIRO Egypt's Orascom Construction Industries (OCIC.CA) will build a $1.4 billion fertilizer plant in Iowa and is buying a U.S. construction firm, as it targets growth outside its main Middle East markets, the company said on Wednesday.
The plant in the main U.S. corn-growing region will make between 1.5 and 2 million metric tons of products including ammonia, urea and urea ammonium nitrate annually, reducing U.S. reliance on imports, OCI said in a statement.
Construction is due to begin this year for completion by mid-2015 and will be funded using equity and bonds.
The Iowa investment comes after a sharp drop in the price of U.S. natural gas, a key input for fertilizer.
"It costs $100 to (import fertilizer) to Iowa on a $400 product," OCI Chairman Nassef Sawiris told Reuters in a phone interview. "The Iowa plant will keep that $100 dollars in its operating margin."
OCI's construction arm took the contract worth over $1 billion to build the plant, which will use technology from Kellogg Brown and Root, Maire Tecnimont and ThyssenKrupp (TKAG.DE).
Orascom Construction Group also said it was buying The Weitz Co, an Iowa-based commercial, federal and industrial construction specialist whose revenue tumbled by more than half in recent years because of the U.S. economic downturn.
Weitz had an orders backlog of $788 million on June 30, half of it made up of federal projects. It will bolster OCI's U.S.-based construction business Contrack International.
Sawiris said recent fertilizer investments meant a 60 percent increase in OCI's profit-generating assets during the second half of 2012.
"As this ... asset improvement comes to an end in November and December, people are going to see month after month of quite significant growth," said Sawiris, whose family founded some of the biggest companies in Egypt, in industries ranging from telecoms to hotels.
He said OCI now had enough new projects on its plate until 2013 when it would address fresh growth opportunities.
CONSTRUCTION MARGIN SQUEEZE
Sawiris said markets such as Libya and Egypt had suffered from the Arab Spring uprisings that began in early 2011. But Saudi Arabia remained very strong.
Asked if OCI's construction business would see growth in its order backlog in the coming year, he said: "Sure ... We are working on other sizeable opportunities and we are always bidding for work".
His optimism comes despite a slide in investment and tourism into Egypt in the wake of last year's popular uprising.
The Egyptian government has spent most of its foreign reserves to limit a decline in the pound against the U.S. dollar. That helped cap inflation, but left some foreign investors wary of stepping back into Egypt for fear of a slide on the pound.
"We have to get the currency obstacle behind us even with a not very significant devaluation, but some kind of adjustment has to happen. The faster it happens the faster we will get the (Egyptian) economy growing," said Sawiris.
Sawiris said he expected a demerger of OCI's fertilizer and construction businesses, first planned for the third quarter of this year, to be completed in October and that government approval for the split appeared imminent.
He said it was possible OCI would see a one-off impact from a move by Egypt's government to rationalize or phase out gasoline and diesel subsidies for industry, but its customers would share some of the added costs.
"All our construction contracts have cost-adjustment formulas so ... clients will participate in the implications," he said, adding it was time Egypt got rid of subsidies that drained precious funds from education and health.
"Every time I go on vacation in Egypt, I feel disgusted that my motorboat is receiving subsidized fuel," he said.
(Editing by David Holmes)