Investor Is Set on North Korea: $115 Million On Cement-Firm Stake

Investor Is Set on North Korea
Big Egyptian Builder To Spend $115 Million On Cement-Firm Stake
By EVAN RAMSTAD
July 16, 2007; Page A6

SEOUL, South Korea -- A big Egyptian construction company is investing $115 million in a North Korean cement plant, marking one of the largest private investments in the country just as tensions begin to ease between Pyongyang and nations trying to get it to give up its nuclear pursuit.
Orascom Construction Industries S.A.E. of Cairo, one of the world's biggest construction companies, said it is acquiring a 50% stake in the state-owned plant.
The Egyptian company, expected to announce the deal today, is hoping to get a head start in an impoverished market where billions of dollars in opportunities could emerge if North Korean dictator Kim Jong Il halts his nuclear program and restores economic connections to the world.
Over the weekend, North Korea said it shut its sole nuclear power plant, which it used to produce ignition material for nuclear weapons, to comply with the first step of an aid-for-weapons deal it made with five countries -- China, Japan, Russia, South Korea and the U.S. A team of inspectors from the International Atomic Energy Agency arrived Saturday to confirm the shutdown and set up surveillance equipment to ensure ongoing compliance with the February agreement.
The five nations are pressing the North to disable that plant permanently and disclose all of its nuclear-weapons research as the second step in their deal. In return, the five have offered energy and financial aid equivalent to one million tons of heavy fuel oil, valued at about $90 million.
The five countries, and perhaps others, are likely to offer far more economic assistance if Mr. Kim halts all research and gives up North Korea's existing nuclear weapons.
Nassef Sawiris, chief executive of Orascom Construction, said he is hopeful such aid could form the base for economic development in North Korea. "Shortly they will get a lot of aid from various countries, [which] will enhance growth and increase demand for cement," he said.
Several times in the past, international businesses have gotten excited about the prospect of developing North Korea -- notably during its political softening to the U.S. in the mid-1990s -- only to see the country close up again. A Chinese developer's plan to build an industrial park in North Korea near the border with China never was completed, in part due to political difficulties. Hyundai Asan Co. of South Korea, a company created to invest in the North, has spent more than $1 billion since 1999 to build a tourist resort and industrial park there, but it hasn't made money from them.
But in working with a unit of the North Korean government, Mr. Sawiris said, Orascom Construction forged a Western-style shareholders agreement with governance and technical-control assurances, and it even won permission to bring in personnel from the U.S. if needed. "With their aspirations in several sectors of the economy, we believe the mind-set there is ready for more of this" type of deal, he said.
The construction company, which reported revenue of $2.8 billion for 2006, spent nearly four months on technical study and financial due diligence at North Korea's largest cement plant, which is in Sangwon, about 60 miles from the capital city Pyongyang.
The plant, a unit of Pyongyang Myongdang Trading Corp., has for years been running below its full annual capacity of 2.5 million metric tons. Mr. Sawiris said that Orascom intends to help upgrade the facility to raise capacity to three million metric tons a year.
Orascom Construction says it owns and operates cement plants in Egypt, Algeria, Turkey, Pakistan, Iraq and Spain that have a combined annual production capacity of 21 million metric tons. It says new investments in several of those countries plus Nigeria, United Arab Emirates, Saudia Arabia and Syria will increase its capacity to 39 million metric tons a year.
Mr. Sawiris is one of three sons of Onsi Sawiris, head of Egypt's most-prominent business family. The family empire also includes tourism and telecommunications companies.

-- Cassell Bryan-Low in London contributed to this article.

Write to Evan Ramstad at evan.ramstad@wsj.com