Two top steel companies to merge
September 26, 2016 Category Mergers & Acquisitions, Weekly
China’s top steelmakers Baoshan Iron and Steel Co and Wuhan Iron and Steel Group will merge to create the world’s second-largest steel entity. Baoshan is ranked fifth in terms of world production capacity, while Wuhan is 11th. After the take-over, Wuhan Steel will delist from the A-share market on the Shanghai Stock Exchange. The two companies have a joint annual production capacity of more than 60 million tons, making it the second-biggest producer behind ArcelorMittal. The new entity will be called China Baowu Iron and Steel Group. The Chinese government also gave its final approval for the merger. The market value of the new group will surpass CNY108.5 billion, and its total assets will be worth CNY700 billion. The merger is in line with the Chinese government’s efforts to overhaul the steel sector, upgrade quality and cut overcapacity. Chi Jingdong, Deputy Director of the China Iron and Steel Association (CISA), said the central government wants to consolidate 60% to 70% of the nation’s steel output into 10 giant groups to enhance their competitiveness. Shanghai-based Baosteel’s net profit plummeted 83% to CNY1 billion last year, while Wuhan Steel lost CNY7.5 billion, compared with a CNY1.3 billion net profit in 2014. Restructuring of another two Chinese steel giants, both based in Liaoning province, Ansteel and Benxi Steel Group, is next on the agenda. Ansteel is the world’s seventh biggest mill, and Benxi steel ranks 21st. The listed arms of the two groups suspended trading in Shenzhen pending statements on the restructuring, the Shanghai Daily reports.
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