Swedish green steel maker mulls IPO to finance expansion plans

Stegra AB, which is building the world’s biggest green steel plant in northern Sweden, is doing initial work for an eventual public listing of shares because its expansion plans may need more funding than it can raise privately.

The four-year-old startup, on track to start producing the metal by the end of next year, has raised about €6.5 billion ($7.4 billion) so far, one-third equity and two-thirds debt. That will largely be used to get the plant up and running and produce 2.5 million tons a year. A second phase could see Stegra double the production, but would require further substantial fund raising.

“I think we can do phase 1 and phase 2 through the private market, but if we want to go further than that, then it’s a lot of money to raise on the private market even if we have strong investors with us,” chief executive officer Henrik Henriksson told reporters at its inaugural capital markets day at the site in Boden. “So it’s something we’re working on to prepare for but we haven’t set a time frame.”

The firm is among a new breed of steelmakers seeking to overhaul the way the alloy is manufactured in one of the most polluting industries in the world. The sector, which has relied largely on the same production techniques for more than a century, accounts for about 7% of global carbon emissions. Stegra will largely use hydrogen made with renewables rather than polluting fossil fuels in its production process.

“We have ambitions to grow,” Henriksson said Tuesday. “First we want to complete Boden, get it up and running and show that we can start to generate money.”

His comments come as steel structures are being erected at pace on the vast plot of land just outside the small town of 30,000 people. Hundreds of cranes, diggers and trucks are in the process of building the factory where the tallest structure will stand at about 140 meters (459 feet).

About 40% of the construction is complete, according to Henriksson. Work progresses by about 1% a week and he says he expects to get to 75% by the end of the year.

Higher premiums

The company also shared some financial forecasts for the first time. Henriksson said Stegra has increased its expectation for earnings before interest, taxes, depreciation and amortization in 2030 by about 10% from a 2023 estimate of €1.1 billion as a result of higher premiums paid for green steel compared with traditional products.

Return on capital employed will be above 20% for phase 1, which is much higher than the industry average, it said.

One big stumbling block for Boden is that it hasn’t yet got a connection to the power grid for its second phase. Without it, there won’t be an investment decision, said Henriksson, adding that he hopes to get some clarity by early next year.

The steel factory is part of a cluster of projects backed by Vargas Holding AB, a Swedish impact investor whose mission is to cut global emissions by 1% — the equivalent of annual carbon pollution from Australia. But its other big industrial bet, electric-vehicle battery maker Northvolt AB, filed for bankruptcy after expanding too fast and running out of cash.

Henriksson said that both Stegra as a company, and the steel product it is making, are different from Northvolt, even though there are similarities in the funding model with supply contracts used as collateral.

(By Lars Paulsson)