A consortium led by Salini Impregilo has won a $6 billion contract to build part of a subway system for the Saudi Arabian capital in a deal which the builder said showed the benefits of its formation from two merging Italian firms.
Impregilo and Salini are completing a tie-up to create a global construction player focused on large civil engineering projects from roads to hydroelectric dams in over 60 countries, including the Middle East, the Americas and Australia.
While shareholders are expected to clear the merger only in September, the companies have already set up joint structures to bid for tenders under the name Salini Impregilo.
“The bigger firm increases our rate of success in bigger tenders, which in the end are the ones with more interesting margins,” Salini Impregilo Chief Financial Officer Massimo Ferrari told Reuters.
The Saudi Arabian government plans to develop a six-line metro system with driverless trains at an overall cost of $22.5 billion to ease congestion and pollution in the streets of the capital, Riyadh.
As the consortium’s leader, Salini Impregilo will book the entire $6 billion of the value of the contract in its order book and allocate parts of the sum to its partners.
Salini Impregilo’s attributable net income from the deal will be equivalent to around 29 per cent of the $4.9 billion estimated for civil works, Ferrari said.
Works on the subway will start next year and are expected to be completed by 2018, he added.
Ferrari said the group was awaiting news on other “big and important” tenders, both in the Middle East and globally, although he declined to give details.
Salini Impregilo won the Saudi contract along with Italian railway technology group Ansaldo STS, Canada’s Bombardier, Indian engineering and construction firm Larsen & Toubro and Saudi group Nesma.
Ansaldo will be responsible for technology, Bombardier for the provision of vehicles, while Salini Impregilo, Larsen & Toubro and Nesma will be in charge of civil works, according to a separate statement issued by Ansaldo.
Impregilo shares were up 1.24 per cent at 3.27 euros by 1515 GMT, compared with a 0.87 per cent drop in Italy’s blue-chip FTSE MIB index.
Salini Impregilo is already present in the Middle East, one of the market it sees as key to offset sluggish growth at home. Another consortium led by the Italian group recently won a contract worth around 1.7 billion euros ($2.25 billion) to build a metro line in Doha, Qatar.