As the new owner of a copper manufacturer and an Australian iron ore mine, Shagang appears closer than ever to a stock listing.
Gong Jing, Caijing 12 January 2009
China’s largest private steelmaker, Jiangsu Shagang Group, has made what may be its first solid step toward tapping the capital market.
Jiangsu Province-based Shagang recently unveiled plans to invest in debt-ridden copper-tube maker Gaoxin Zhangtong Co. (SZSE: 002075) which, despite sluggish performance, may fit the steelmaker’s strategy for a future public listing.
Zhangtong announced December 19 that it would issue 2.23 billion yuan worth of new shares to Shagang, giving the steelmaker a 76 percent controlling stake. In turn, Shagang plans to transfer the assets of two of its subsidiaries -- Huaigang Special Steel Co. and Anyang Yongxing Iron & Steel Co. -- to Zhangtong.
Huaigang and Anyang Yongxing have a combined production capacity of 5 million tons, accounting for about 18.5 percent of Shagang’s overall production capacity.
In an interview with Caijing on December 27, Shagang Chairman Shen Wenrong said if the deal with Zhangtong goes smoothly, his company could further push forward its back-door listing plan by injecting more assets into Zhangtong.
Shen also disclosed that Shagang would consider an overseas listing by inviting foreign strategic partners if the capital market improves.
At the same time, Caijing learned, Shagang made a major upstream resources purchase as part of its effort to expand. The company in November won control of an Australian iron ore mine, Shen told Caijing, with proven reserves of about 800 million tons. The mine is expected to supply Shagang with 13 million tons of ore every year.
Shagang’s expansion efforts come as China’s steel industry adjusts to a slump that began in early 2008. Weakening demand has forced several small steel plants to close, while some large producers have reduced production.
Shen said he expects a gloomy market for the next two years -- or even longer. But the situation may not hinder Shagang’s expansion moves; Shen said the steelmaker is likely to launch more acquisitions in 2009.
Listing Opportunity
Shagang officials are cautious with comments about a possible public listing through Zhangtong. In an interview with Caijing, Shen stressed the deal is still awaiting regulatory approval. “Any other plan can only be considered after approval,” he said.
However, the apparently successful acquisition of Zhangtong was seen as a major step for Shagang in its quest for a long-awaited listing.
Shagang has tried to open a financing channel through a public listing for more than 10 years. But the attempts have been hindered by the government’s control over the private steelmakers’ access to the capital market, according to a source close to the company.
In early 2007, Shagang unsuccessfully tried to launch a back-door listing through the takeover Lingyuan Iron & Steel Co. (SSE: 600231). Later, in another fruitless effort, Shagang reportedly invited U.S. investment bank Goldman Sachs as a strategic partner to push forward an overseas listing.
Shen told Caijing in a 2007 interview “there is no private steel company listing on the A-share market, although most state-owned steel producers with much smaller capacities have successfully listed.”
It seemed to surprise Shagang that the opportunity to buy Zhangtong emerged in the current, distressed market. “Shagang didn’t actively seek a deal with Zhangtong,” a senior source at the steelmaker said. “The opportunity came by itself.”
In early 2008, the Jiangsu-based copper tube maker posted a 179 million yuan loss. Its officials were accused of faking accounting reports, and a Jiangsu provincial securities regulator launched an investigation last July. Chairman Guo Zhaoxiang was detained for alleged wrongdoing.
In September, the government appointed the State Development and Investment Corp. (SDIC) to manage and seek to revamp Zhangtong. The local government has paid closed attention to a possible reshuffling and promoted Shagang’s participation.
Overseas Ambition
Although the Zhangtong takeover would also shift 735 million yuan in debt onto Shagang’s books, industry insiders think the steelmaker will benefit in the long run.
Indeed, the market reacted positively to the deal, as investors expect it to lead to a Shagang listing. Zhangtong’s share price rose to the daily trading limit for several consecutive days after the announcement.
A Shagang statement said the company would consider injecting more assets into the new subsidiary after a reshuffle, depending on its business performance. And Shen said a back-door listing through Zhangtong is just one possibility, as Shagang has never given up a desire to seek an overseas IPO, particularly one involving its core assets, by inviting foreign strategic partners.
A senior Shagang executive told Caijing that Goldman Sachs had planned to buy a 10 percent stake in Shagang for 6.6 billion yuan in August 2007. And although rejected by regulators, the company’s Hong Kong listing plan has gone through several drafts.
Shen expects the current global economic slowdown to pressure the Chinese government into easing controls on private enterprises’ fund-raising activities. Private enterprises are playing a more important role in China’s economy, he said, and Shagang will have more opportunities to get a government green light for an overseas listing.
Keeping Pace
While working toward a back-door listing, Shagang is also actively seeking ore resources overseas amid declining commodity prices.
Chinese steelmakers are competing fiercely for overseas access to ore due to limited domestic reserves.
Shagang has been seeking foreign resources since 2004, when it joined three other Chinese steelmakers for an investment in Australian miner BHP Billiton’s Jimblebar mine. The mine currently supplies Shagang with 5 million tons of ore every year.
In September 2007, Shagang acquired a 90 percent stake in Australian Bulk Minerals (ABM) from British mining company Stemcor Holding Ltd. ABM reportedly has proven reserves of 283 million tons and plans to produce 2 million tons of ore for Shagang every year.
More recently, Shen said Shagang used capital from the ABM acquisition to buy the mine in Australia. He said the mine is expected to produce 6.8 million tons of high quality ore per year after operation starts.
Due to current decline in steel demand, Shen said Shagang has no plans to exploit the reserve immediately. The project still needs an investment of up to US$ 1 billion.
The new mine deal will bring Shagang’s ore reserves to more than 1 billion tons, more than any other private steelmaker in China. When production starts at the new mine, Shagang will have an annual, secure ore supply of 13.8 million tons, satisfying 50 percent of its current demand.
Although the market has shown concern about Shagang’s expansion, which may be risky in such a gloomy business environment, Shen thinks market distress can yield opportunities for acquisitions and expansions.
Shen said he expects China’s steel production to fall to about 400 million tons in 2009, even though demand may be only 200 million tons. However, Shen said Shagang will run at full capacity this year as part of a strategy to expand its market share and take advantage of cost advantages.
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Expanding Shagang Steel Pledges Fast Pace
As the new owner of a copper manufacturer and an Australian iron ore mine, Shagang appears closer than ever to a stock listing.
Gong Jing, Caijing
12 January 2009
China’s largest private steelmaker, Jiangsu Shagang Group, has made what may be its first solid step toward tapping the capital market.
Jiangsu Province-based Shagang recently unveiled plans to invest in debt-ridden copper-tube maker Gaoxin Zhangtong Co. (SZSE: 002075) which, despite sluggish performance, may fit the steelmaker’s strategy for a future public listing.
Zhangtong announced December 19 that it would issue 2.23 billion yuan worth of new shares to Shagang, giving the steelmaker a 76 percent controlling stake. In turn, Shagang plans to transfer the assets of two of its subsidiaries -- Huaigang Special Steel Co. and Anyang Yongxing Iron & Steel Co. -- to Zhangtong.
Huaigang and Anyang Yongxing have a combined production capacity of 5 million tons, accounting for about 18.5 percent of Shagang’s overall production capacity.
In an interview with Caijing on December 27, Shagang Chairman Shen Wenrong said if the deal with Zhangtong goes smoothly, his company could further push forward its back-door listing plan by injecting more assets into Zhangtong.
Shen also disclosed that Shagang would consider an overseas listing by inviting foreign strategic partners if the capital market improves.
At the same time, Caijing learned, Shagang made a major upstream resources purchase as part of its effort to expand. The company in November won control of an Australian iron ore mine, Shen told Caijing, with proven reserves of about 800 million tons. The mine is expected to supply Shagang with 13 million tons of ore every year.
Shagang’s expansion efforts come as China’s steel industry adjusts to a slump that began in early 2008. Weakening demand has forced several small steel plants to close, while some large producers have reduced production.
Shen said he expects a gloomy market for the next two years -- or even longer. But the situation may not hinder Shagang’s expansion moves; Shen said the steelmaker is likely to launch more acquisitions in 2009.
Listing Opportunity
Shagang officials are cautious with comments about a possible public listing through Zhangtong. In an interview with Caijing, Shen stressed the deal is still awaiting regulatory approval. “Any other plan can only be considered after approval,” he said.
However, the apparently successful acquisition of Zhangtong was seen as a major step for Shagang in its quest for a long-awaited listing.
Shagang has tried to open a financing channel through a public listing for more than 10 years. But the attempts have been hindered by the government’s control over the private steelmakers’ access to the capital market, according to a source close to the company.
In early 2007, Shagang unsuccessfully tried to launch a back-door listing through the takeover Lingyuan Iron & Steel Co. (SSE: 600231). Later, in another fruitless effort, Shagang reportedly invited U.S. investment bank Goldman Sachs as a strategic partner to push forward an overseas listing.
Shen told Caijing in a 2007 interview “there is no private steel company listing on the A-share market, although most state-owned steel producers with much smaller capacities have successfully listed.”
It seemed to surprise Shagang that the opportunity to buy Zhangtong emerged in the current, distressed market. “Shagang didn’t actively seek a deal with Zhangtong,” a senior source at the steelmaker said. “The opportunity came by itself.”
In early 2008, the Jiangsu-based copper tube maker posted a 179 million yuan loss. Its officials were accused of faking accounting reports, and a Jiangsu provincial securities regulator launched an investigation last July. Chairman Guo Zhaoxiang was detained for alleged wrongdoing.
In September, the government appointed the State Development and Investment Corp. (SDIC) to manage and seek to revamp Zhangtong. The local government has paid closed attention to a possible reshuffling and promoted Shagang’s participation.
Overseas Ambition
Although the Zhangtong takeover would also shift 735 million yuan in debt onto Shagang’s books, industry insiders think the steelmaker will benefit in the long run.
Indeed, the market reacted positively to the deal, as investors expect it to lead to a Shagang listing. Zhangtong’s share price rose to the daily trading limit for several consecutive days after the announcement.
A Shagang statement said the company would consider injecting more assets into the new subsidiary after a reshuffle, depending on its business performance. And Shen said a back-door listing through Zhangtong is just one possibility, as Shagang has never given up a desire to seek an overseas IPO, particularly one involving its core assets, by inviting foreign strategic partners.
A senior Shagang executive told Caijing that Goldman Sachs had planned to buy a 10 percent stake in Shagang for 6.6 billion yuan in August 2007. And although rejected by regulators, the company’s Hong Kong listing plan has gone through several drafts.
Shen expects the current global economic slowdown to pressure the Chinese government into easing controls on private enterprises’ fund-raising activities. Private enterprises are playing a more important role in China’s economy, he said, and Shagang will have more opportunities to get a government green light for an overseas listing.
Keeping Pace
While working toward a back-door listing, Shagang is also actively seeking ore resources overseas amid declining commodity prices.
Chinese steelmakers are competing fiercely for overseas access to ore due to limited domestic reserves.
Shagang has been seeking foreign resources since 2004, when it joined three other Chinese steelmakers for an investment in Australian miner BHP Billiton’s Jimblebar mine. The mine currently supplies Shagang with 5 million tons of ore every year.
In September 2007, Shagang acquired a 90 percent stake in Australian Bulk Minerals (ABM) from British mining company Stemcor Holding Ltd. ABM reportedly has proven reserves of 283 million tons and plans to produce 2 million tons of ore for Shagang every year.
More recently, Shen said Shagang used capital from the ABM acquisition to buy the mine in Australia. He said the mine is expected to produce 6.8 million tons of high quality ore per year after operation starts.
Due to current decline in steel demand, Shen said Shagang has no plans to exploit the reserve immediately. The project still needs an investment of up to US$ 1 billion.
The new mine deal will bring Shagang’s ore reserves to more than 1 billion tons, more than any other private steelmaker in China. When production starts at the new mine, Shagang will have an annual, secure ore supply of 13.8 million tons, satisfying 50 percent of its current demand.
Although the market has shown concern about Shagang’s expansion, which may be risky in such a gloomy business environment, Shen thinks market distress can yield opportunities for acquisitions and expansions.
Shen said he expects China’s steel production to fall to about 400 million tons in 2009, even though demand may be only 200 million tons. However, Shen said Shagang will run at full capacity this year as part of a strategy to expand its market share and take advantage of cost advantages.
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