Indian engineering and construction giant Larsen & Toubro
(L&T) is close to winning a $800-million contract from Saudi Aramco for building its upstream processing facilities for the Midyan field, as well as a 135-kilometre pipeline to transport gas to the power plant in Saudi Arabia.
According to sources, this will be one of the biggest construction contracts ever won by an Indian company abroad. A formal announcement is expected in the next few days, sources said. A company spokesperson declined to comment.
With the Indian economy slowing down, L&T has been increasingly focusing on its international businesses to improve its topline. However, according to analysts, the margins abroad are far lower for the company, compared with the Indian markets.
On Tuesday, L&T's stock was up 3.2 per cent to Rs 1,425 as the market speculated on an impending deal. The BSE Sensex
was up 2.11 per cent during the day.
Company sources said the project is to develop the onshore Midyan gas field to produce 75 million cubic feet a day of gas condensate for a 20-year period. The output will, then, be transported to a power plant in the coastal city of Duba, which is situated 135 kilometres away.
The deal will be a lifeline for the company, which is facing falling orders as new projects activity remains weak as private sector companies slow down on investments. In fact, according to the Centre for Monitoring Indian Economy (CMIE), the average four quarterly rate of new investment of $24 billion was down 57 per cent year-on-year and down 31 per cent quarter-by-quarter.
On a quarterly basis, this was the lowest since June 2005. Both private and government capital expenditure remained subdued - with private capex falling significantly. Apart from this, the stalled projects continue to remain high at 6 per cent of projects outstanding.
In this backdrop, L&T is focusing on the Gulf region to boost its revenues. L&T, in consortium with international players, has placed bids for a portion of $30 billion of Middle East infrastructure projects, and L&T's share of the bid opportunity is estimated at $3.5 billion, said analysts.
L&T has bid for two metro projects (Doha & Riyadh - $7-8 billion each), the Etihad railway project ($11 billion) connecting all the seven Emirates and a 265-km road project in Oman ($2.6 billion) as part of international consortiums.
The number of bidders goes up to 10-15 for the road and railway projects, whereas the metro projects have 4-8 pre-qualified consortia with more members.
According to L&T, Ebitda (earnings before interest, taxes, depreciation and amortization) margins on the West Asia infrastructure projects could be 200 basis points lower than similar projects in India.
Gulf orders L&T has bid for&
- $7-8 billion
- $7-8 billion
- $11 billion
Etihad railway project
- $2.6 billion
Oman road project
(&as part of a global consortium)