POSCO has reportedly retained its joint project with Saudi Arabia to develop social overhead capital and an automobile factory, as Middle Eastern authorities reaffirmed the collaboration despite a graft scandal surrounding Korea’s largest steelmaker.

According to steel industry insiders, Saudi Arabian Finance Minister Ibrahim Abdulaziz Al-Assaf met with POSCO chairman Kwon Oh-joon on Wednesday and said the collaboration will be carried out as planned. Assaf visited Seoul as part of Saudi Arabian oil producer Aramco’s delegation.

“The deal creates a win-win situation. While POSCO needs to improve its financial health and find a new growth engine, Saudi Arabia will be able to establish its own manufacturing infrastructure. This will not be shaken by a felony allegedly committed by former management,” an industry official was quoted as saying to the Chosun Ilbo newspaper.

In March, POSCO signed a memorandum of understanding with the Saudi Arabian government for the joint development project.

Under the deal, POSCO will sell 38 percent of a POSCO E&C stake to Saudi Arabia’s sovereign fund, PIF, for 1.5 trillion won ($1.36 billion) and establish a joint venture for the development.

POSCO affiliate Daewoo International will take about a 15 percent share of Saudi Arabia’s newly established state-run automotive company to participate in the design, parts supply and assembly processes.

However, the plan hit a snag when prosecutors launched an investigation into the alleged slush fund created by POSCO E&C management. The company is also under a Vietnamese investigation for another embezzlement allegation. Kwon told reporters last month, “It might be difficult to push ahead with the Saudi Arabian project.”

Currently, all vehicles in Saudi Arabia are imported. The Saudi Arabian government is pushing for the construction of automotive factories in the country to provide domestic cars for every citizen in the Middle Eastern country.

By Bae Ji-sook (baejisook@heraldcorp.com)