Daewoo International, a trading subsidiary of POSCO, will push for a car manufacturing plant in Saudi Arabia, according to the sources close to the company this week.

The significance of the project would be that Saudi could potentially start producing its own domestic vehicles, they said.

The main business entities involved are an automobile subsidiary of Saudi’s Al Safari group, the Saudi Arabian Public Investment Fund and POSCO.

“If Daewoo International oversees the project, both POSCO’s auto sector and its construction arm will be able to contribute to Saudi, creating synergy for the group,” a POSCO official was quoted as saying.

The auto market in Saudi Arabia currently sells about 700,000 cars per year ― roughly half of that in Korea. If the project receives approval, starting in 2017, a yearly production of 150,000 Saudi-brand cars, domestication of parts manufacture and exportation to other GCC countries from Saudi Arabia can be anticipated.

Furthermore, Daewoo International plans to oversee the entire process of assembly production beginning with the planning stage, while POSCO Engineering & Construction, the group’s construction arm, may participate in the actual building of the auto plant.

For the trading company, it may also mean the potential distribution of Korean auto industry technology and parts.

The project will require approximately $1 billion, which is to be primarily funded by the Saudi PIF. Partial investment may come from Daewoo International.

The company declined to comment, stressing that nothing has been fixed yet.

POSCO chairman Kwon Oh-joon will meet with Saudi’s PIF secretary general Abdulrahman Almofadhi on Wednesday to further discuss the terms of the project, POSCO group stated Monday.

Daewoo International has previous experience with operating auto plants abroad and currently collects over 1.2 trillion won ($1.13 billion) in overseas sales.

By Kim Joo-hyun (jhk@heraldcorp.com)