Posted on 17 May 2021
Shagang Group (Shagang), China’s leading privately-owned steel producer, will participate in a mixed-ownership reform of state-owned Anyang Iron & Steel Group (Angang), a 10 million tonnes/year steelmaker in Central China's Henan province, according to a post of Angang’s listed arm on May 14. Jiangsu province-based Shagang will become Angang’s controlling shareholder, the post noted.
Shagang’s takeover of Angang, if realized, will be the latest in a spate of M&A successes in China in recent years involving both state- and privately-owned companies, as the country continues efforts to enhance consolidation of its steel industry, market sources noted. In China , a private or a foreign-owned company help in the restructuring of a state-owned enterprise, that restructuring is referred to as mixed-ownership reform.
The central government’s goal for steel consolidation is for the contribution of the country’s top ten steelmakers in total steel output to be 60% by 2025, from 39.2% as of 2020, as reported.
According to the May 14 announcement from Anyang Iron & Steel Group (Anyang Steel), Angang’s Shanghai-listed arm, Shagang and Angang signed a letter of intent on May 13 under which Shagang will conduct due diligence, an audit and evaluation before eventually deciding whether to participate in the latter’s reform. Consequently, the implementation and timeline of the case are still uncertain, the May 14 post said.
As of press time Friday evening, Shagang had not replied to Mysteel’s request for confirmation.
Angang is the largest steelmaker in Henan province, accounting for around 30% of the province’s total production of 35.3 million tonnes in 2020, according to the country’s official data. Though the company produces mainly flat steel (it has a joint venture with Japan’s Kobe Steel making high strength cold-rolled coils for automotive applications), its catalogue also includes sections and other long products.
In recent years, Angang’s business has faced financial constraints due to frequent and strict production restrictions on industrial plants in Anyang city, one of the “2+26” cities across China under the regular scrutiny of the Ministry of Ecology and Environment for the severity of atmospheric pollution.
Aware of this, over the past several years Angang had invested heavily in environmental protection and in 2019, in relocating part of its steel facilities from the downtown area of Anyang to a suburb area of Zhoukou city, some 350 kms south of Anyang, as Mysteel Global reported.
Yet in 2020 while most other major Chinese steelmakers were having a prosperous year, the net profits of Angang’s listed arm Anyang Steel actually declined 10.9% on year to Yuan 228.4 million ($35.4 million), according to the annual report of Anyang Steel.
“The problem is that neither Angang’s products nor its operation enjoy any unique advantages,” a Henan-based source close to the steelmaker stated. “With China’s goal of achieving carbon peak (by 2030) and neutrality (by 2060), Angang is facing great pressure regarding relocation and restructuring. Resolving these twin issues will require the help of a giant that has strong financial strength.”
The Henan source was not surprised that Shagang might have an interest in Angang, pointing out that Shagang already has a wholly owned subsidiary in Anyang city, namely the 3 million t/y carbon steelmaker Anyang Yongxing Special Steel Co.
Shagang is among China’s top five steelmakers and hosts around 45 million t/y of crude steel capacity in five steelworks – three in Jiangsu, Anyang Yongxing in Henan and another in Northeast China's Liaoning, Mysteel Global notes.
Source:Mysteel Global
