By: AGBI

A $10 billion joint venture between a Danish logistics giant and Saudi Arabia’s Neom will fail to contribute materially to earnings this year and has yet to begin operations – further indicating delays across the kingdom’s giga-projects.

The news represents a more downbeat outlook than in March.

The deal between Neom and DSV A/S, a Danish-listed firm valued at $52 billion which has exclusive rights to manage logistics and transport services at the giga-project, was meant to be up and running in the second quarter of 2024.

“The planned logistics joint venture with Neom has not yet commenced operations, and no capital has been allocated to the joint venture,” DSV said in its half-year earnings. 

“We still do not expect any material financial contribution from the joint venture in 2025.”

DSV holds a 49 percent stake in the joint venture, announced in 2023, with the remaining 51 percent owned by Neom, which is backed by Saudi Arabia’s $925 billion Public Investment Fund (PIF).

The comments on Monday marked a shift from earlier in the year, when DSV chief executive Jens H. Lund told shareholders the ramp-up had been “slower than expected” but did not revise guidance. 

The Danish company did not respond to AGBI’s request for further comment.

DSV has committed up to $2.45 billion to the project but capped planned 2025 spending estimates at $100 million as timelines slipped, according to an April investor presentation.

The company previously said it still expected the venture to begin in 2025 and deliver a pretax return on capital of at least 20 percent, in line with targets.

To limit its exposure, Lund had said it has structured the joint venture so that capital is deployed only after Neom signs offtake agreements committing to use the infrastructure being built. 

“This means that we do get the return on the capital that we’ve deployed, and that’s the foundation for our work there,” he said. 

The update adds to growing signs of strain at Neom, the $500 billion futuristic city development that anchors Crown Prince Mohammed bin Salman’s Vision 2030 transformation plan to diversify the Saudi economy. 

In July, Bloomberg reported that the PIF had begun a strategic review of The Line, Neom’s proposed 170km-long zero-carbon city, asking consultants to assess feasibility and phasing as the kingdom reassesses priorities.

AGBI reported in March that the PIF has ordered across-the-board spending cuts of “at least” 20 percent for 2025, including at more than 50 development firms. 

Some budgets have been slashed by up to 60 percent, people familiar with the matter said, triggering layoffs, contract cancellations and project delays.