Daye, headquartered at Huangshi city, Central China’s Hubei province, will acquire an 86.5% ownership of Xingcheng from the latter’s six existing shareholders at a cost of Yuan 23.2 billion ($3.36 billion) via new shares issuance, growing into a 13 million t/y special steel maker, according to the announcements. Xincheng is located in Jiangyin city of East China’s Jiangsu province.
The merger was initiated in the context of Beijing’s calling for the country’s specialty steel industrial optimization and upgrading via mergers and acquisitions (M&As) and the market potential for specialty steel producer with the central government’s resolve to upgrading its manufacturing industry, the announcements explained.
The consolidation will also enable CITIC to tap the rich RMB funding in the Chinese mainland via Daye, according to the notice.
“Absorbing the group’s most premium and profitable assets is our core target and it will make our company more attractive to the investors and competitive,” a Daye official said.
When completed, Daye will be China’s largest specialty steel mill with the most comprehensive products structure, being capable of producing 3,000 kinds of special steel items such as structure steel, tool steel, offshore engineering, and heavy-duty machinery manufacturing.
Beijing’s focus in the steel industry’s reform has shifted to concentration enhancement mainly via M&As starting 2019, aiming to increase contribution of the top 10 Chinese steel producers to 60%-70% of the country’s total steel output by 2025, according to Daye's notice. As of 2017, the concentration recorded 36.9%, Mysteel understands.
CITIC Ltd, listed on Hong Kong, is owned by CITIC Group-a Chinese state-owned multinational conglomerate with businesses spreading from mining, specialty steel, trading, manufacturing, financing and property markets, according to the company profile.
CITIC’s latest move is of no surprise to the market, as it is a common practice in China for listed companies to combine the group’s high-quality and profit-making assets so as to maximize the company’s performance and financing ability, a Shanghai-based bond analyst explained.
China’s steel industry has climbed out of lossmaking since 2016, enjoying handsome margins since then because of Beijing’s supply-side reform over 2016-2018 that saw 150 million tonnes/year excess steel capacity and 140 million t/y sub-quality induction furnace erased.
Over January-November 2018, the steel sector remained the second most profitable sector after oil and gas industry with its margin surging 50.2% year on year to Yuan 386.2 billion, according to data from China’s National Bureau of Statistics.