Posted on 18 Oct 2022
Jiangsu Zhangjiagang-based China's Shagang Group is likely to buy 60% shares of Jiangsu Nanjing Iron & Steel (Nangang), which is controlled by Fosun Group, sources suggested on Monday. If the deal closes, Shagang would become China's second-largest steel group by crude steel output.
A steel mill source familiar with Shagang confirmed to Kallanish that the rumour began to circulate last week, and details are beginning to emerge. "The transaction price is CNY 15 billion ($2.08 billion), which is incredibly cheap," he adds. For reference, Nangang's listed company reported a net profit of CNY 4.09 billion in 2021.
The listed companies of Nangang and Shanghai investment giant Fosun Group suspended share trading on Monday without specifying the reason, but saying they are confirming news from the shareholders. However, a person from the Office of the Secretary of the Board of Directors of Nangang told the Economic Observer that the suspension of trading this time is an emergency suspension, and it is not [entirely] due to the above news. The listed company of Shagang Group said that rumors indicate that Shagang Group should make the acquisition decision, so Shagang list's shares would not have to be suspended, and it is currently confirming the news to shareholders.
Chinese financial media Caixin, said that the two companies had completed the contract signing over the past weekend. The remaining 40% of Nangang will still be owned by Nanjing Iron & Steel Group.
According to statistics from the World Steel Association, Shagang Group's crude steel output last year was 44.23 million tonnes, while Nangang produced 11.58mt of crude steel during the same period. After the merger, Shagang's total output will reach 55.81mt, surpassing Angang's 55.65mt and becoming the second-largest steel company after Baowu Group in China, and the world's third-largest steelmaker following Baowu and ArcelorMittal.
Kallanish learned from conversations with many Chinese market participants that people in the steel industry generally believe that Nangang is a relatively high-quality asset of Fosun Group. It would be surprising to sell it at such a low price.
Market participants understand Fosun's move to sell assets is to raise cash, and it is expected that the company will continue to sell assets this year and next. According to incomplete statistics, Fosun's completed and ongoing asset sales are expected to collect more than CNY 23 billion for the company this year. Gong Ping, CFO of the Fosun Group, said that Fosun's seemingly frequent sell-offs are a continuation of the financial strategy of balancing investment and realisation, dynamically sorting out and optimizing its asset portfolio.
According to public data, Fosun International's liabilities were CNY 651.15 billion as of 30 June 2022, its total assets were CNY 849.68 billion. Its asset-liability ratio was 76.63%. The group stated that the real debt attributable to Fosun International is only about CNY 100 billion, corresponding to total assets worth CNY 270 billion, and the corresponding NAV (net asset value) per share should be around CNY 20, so there is no heavy pressure on debt repayment. The company attributed the remaining liabilities to the debts of its financial institutions such as insurance companies and banks, as well as the independent debts of its subsidiaries.
Source:Kallanish
