POSCO Co., South Korea's largest steelmaker, will sign a deal with Saudi Arabia's sovereign wealth fund early this week to sell its stake in its main construction unit, an industry source said Sunday.

The deal with Saudi Arabia's  Public Investment Fund calls for POSCO to sell a 38 percent stake in POSCO Engineering and Construction Co. for 1.2 trillion won ($1.08 billion), the source said.

"A stock purchase agreement will be inked between the two parties early this week," the source close to the matter told Yonhap News Agency, disclosing that the signing is scheduled for Monday.

Up for sale is a 25 percent stake owned by the steelmaker in POSCO E&C and a 13 percent holding that the construction unit will have by issuing new shares, the source said, asking that he not be identified.

With the deal, the Saudi fund plans to establish a joint venture with POSCO E&C to push for infrastructure projects to be undertaken in Saudi Arabia, the source said.

POSCO had planned to wrap up the deal months earlier but the plan has been delayed due to an ongoing prosecution probe into allegations that POSCO E&C had created a slush fund. The results of the investigation have yet to be announced.

The deal comes as POSCO is pushing to expand business relations with the Saudi fund on various fronts.

Daewoo International, a trading arm of POSCO, is now pushing to buy a 15 percent stake in a car company led by the Saudi fund for about 60 billion won. The move is part of Daewoo International's program to enter automaking business ranging from design and parts supply to assembly.

POSCO signed a memorandum of understanding with the Saudi fund in 2014, hoping to jointly explore new business opportunities with it. (Yonhap)