The possibility
that Baosteel Group and Wuhan Iron and Steel Corporation (WISCO) may merger
together has finally worked out.
Both Baosteel
Group and WISCO released public announcement on 26 June that the
controlling shareholders, WISCO and Baosteel Group, have been planning and
preparing for the issues concern the strategic reorganization, with the
specific plan yet to confirm. It has disclosed that the Baosteel and WISCO are
to implement trading halts since 27th June and would confirm the
reorganization scheme as soon as possible during the period of halt.
However, Shaoguan
Songshan Steel, Baosight, and Baosteel Packaging, the listed companies of
Baosteel, have all not released announcement for halting yet, while the
Xinjiang Ba Yi Iron & Steel Group, which also owns by Baosteel, has been
halted for several days due to the issues concern asset reorganization.
According to the bulletin released by Ba Yi Iron & Steel and Baosight on
the afternoon of 26th, the matters concern substantial asset
restructuring of the two listed companies would not affected by the reorganization
between Baosteel and WISCO, neither would it influence the routine production
and operating activities of the companies.
Both the Baosteel
and WISCO are central enterprises that have been directly superintended by the
State-owned Assets Supervision and Administration Commission of the State
Council (SASAC). WISCO is the first extra large-sized iron and steel complex
that was built since the founding of People’s Republic of China, and the
production base of which that located in Wuhan was established since 1955 and
not until the year of 1958 it was completed and put into operation; while
Baosteel Group was established in Shanghai in 1978 and was formally put into
operation in 1985.
After the mergence
of the two companies, the company ranking of the global iron and steel industry
would be reset. In 2015, the output of crude steel of Baosteel was about 34.93
million tonnes, while the WISCO’s was 25.77 million tonnes, respectively ranked
the 5th and 11th. According to the output ranking among
global iron and steel companies, we can see that ArcelorMittal ranked the 1st with its 97.13 million tonnes of output and followed by Hebei Iron and Steel
(HBIS) with the output of 47.74 million tonnes.
Rankings of the Output among
the Major Iron and Steel Companies in 2015
Output of crude steel (10 thousand tonnes)
Source: World Steel
Association
After the mergence
of Baosteel and WISCO, the total output of the new company would reach to 60.7
million tons, and thus it would turn to be a steel magnate that ranked only
second to ArcelorMittal around the globe and at the same time, to be the first
among China’s steel industry. Its output of crude steel would take account of
7.5% of the total 804 million tons of China’s market share.
Ma Guoqiang, 53
years old, was transferred to be the general manager of WISCO from Baosteel in
July 2013 and then succeed Deng Qilin as CEO and secretary of the Party
committee. Ma worked in Baosteel for 18 years and served as general manager of
Baosteel for years before his transfer to WISCO.
As the predecessor
of Ma Guoqiang and senior staff of WISCO, Deng actually disagreed with the
scheme of the mergence of Baosteel and WISCO. Deng started his career as a
process technician in the workshop of WISCO in 1975 and then rose through the
ranks to the CEO of the company. In 2004, during his presidency of general
manager of WISCO, the output of crude steel of the company was only 9 million
tonnes, which was far less than Baosteel’s of 30 million tonnes. Worried about
the possibility that Baosteel may swallow WISCO up, Deng Qilin formulated a
relatively radical plan for expanding capacity. Under his plan, WISCO
successively reorganized Echeng Steel, Liuzhou Steel, and Kunming Steel, which
once made total capacity of WISCO amount to 40 million tons.
From the
perspective of public opinions, it is expected to accelerate the step of the
mergence of Baosteel and WISCO after Ma Guoqiang succeed the position of Deng
Qilin. However, Ma has not shown any intentions on the mergence among his
speeches or talks in public occasions. ‘’There aren’t many opportunities leave
for WISCO in terms of the merger and reorganization among the industry,” said
Ma Guoqiang on the annual general meeting of stockholders of WISCO on June
2016.
While Chen Derong,
the general manager of Baosteel, has repeatedly announced that the company
strongly hoped to implement merger and reorganization among the industry. Chen
has once mentioned, on the March of this year, that the industrial
concentration of the steel industry in the domestic market was quite low,
besides, he also disclosed that Baosteel only took account for 5% of the market
share; and therefore, what the company should do in the future is to expand its
market share by the means of merger and reorganization, but in terms of the
specific target, no further details available.
Senior staffs of
Baosteel disclosed that the decision-making staff of the two companies convened
meetings on the early 2016 for discussing the matters of merger and
reorganization and came to an agreement.
As the steel
industry is in the extreme downturn at the moment, the merger of the two Groups
could also benefit from each other. In 2015, the loss of major steel
enterprises amounted to RMB64.534 billion, among which WISCO and Baosteel were
also facing a depressed business performance.
The net loss of WISCO
was RMB7.51 billion last year, which made WISCO rank first of the A-shares
loss. This has been the first annual loss since its listing in 1999 for WISCO.
The performance of WISCO has all the way declined since 2007, when the company
amounted the peak of profit, that was RMB6.519 billion of net margin.
Last year,
Baosteel, although has had RMB1.01 billion of net profit, faced its worst
performance among the past 18 years. However, the Ba Yi Steel and Shaoguan
Songshan Steel, the subsidiary companies of Baosteel Group, respectively lost
RMB2.6 billion
In 2015, the total
profit of Baosteel Group was RMB1.03 billion, with year-on-year growth of 89%;
while WISCO was in the loss of RMB6.986 billion.
After the mergence
of the two companies, less direct competitions would present to Baosteel and
WISCO. The most direct proof is the two newly-built iron and steel bases that
was built to seize the South China market. In 2012, the Zhanjiang Iron and
Steel Project of Baosteel and the Fangchenggang Iron and Steel Project of WISCO
were approved and put into construction. The two steel factories located in
Guangdong Province and Guangxi Province respectively, with the straight-line
distance of no less than 250 kilometers. Both the factories targeted on the
family appliances and automobile steel sheet market in the areas of South China,
which was once regarded as ‘targeting overlapping’,
According to an
official of Baosteel Group, after the mergence been settled, Baosteel would
take the current situation of Fangchenggan project into consideration to adjust
the following constructing scheme of the Zhanjiang project if the Fangchenggang
project still operated by the new company. In the new scheme, it may remove the
No.3 blast furnace of Zhanjiang project to Fangchenggang as Zhanjiang Steel has
planned and established two furnaces; while in Fangchenggang project, there’s
only one cold rolling production line and no available furnace equipment.
*The article is edited and translated by CCM. The original article comes from Jiemian.com.
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