Uncertainty remains about Shagang's control of Angang

Posted on 26 November 2021

Anyang Iron & Steel Group (Angang), a major state-owned steelmaker in Central China's Henan, is proceeding with its 'mixed-ownership reform', but whether Shagang Group (Shagang) China's largest privately-owned steel producer will play a role and eventually take control is unclear, according to a November 24 post by Angang's listed arm.

 

Shagang, headquartered in East China's Jiangsu, had expressed its intention to take a controlling stake in Angang back in May as part of China's ongoing drive nationwide to lift steel-industry concentration, as Mysteel Global reported.

"There remain uncertainties regarding whether Shagang will eventually participate in (the mixed-ownership reform) and become a strategic investor," Anyang Steel, Angang's Shanghai-listed arm, said in a Wednesday announcement. Angang is specialized in producing hot-rolled coils and strips and has a total capacity of around 10 million t/y, Mysteel Global understands.

The mixed-ownership reform of state-owned enterprises in China is a policy introduced by the central government nearly a decade ago under which Chinese private or foreign strategic investors acquire equity in SOEs to help improve their efficiency and seize new market opportunities.

The launch of mixed-ownership reform is to "change Angang’s system and mechanism, bring in innovation and vigor and promote integration, upgrading and 'high-quality' development of the steel industry in Henan," Anyang Steel stated in the post.

A source close to Angang remarked that the steelmaker desperately needs financial support after investing heavily in environmental protection facilities and technologies of nearly Yuan 10 billion ($1.6 billion) since 2014. Angang is located in Henan's Anyang city, home to some 5.3 million people and one of the "2+26" cities under close scrutiny by Beijing in terms of air pollution control.

The company's need for external capital for development has also grown because of its low revenues over recent years, according to the source.    

Meanwhile, Wednesday's post revealed more details of Angang's proposed mixed-ownership reform, Mysteel Global noted, reporting that the group's board had approved a work plan for the reform. The steelmaker is aiming to locate a strategic investor to eventually hold around 70% of its shares, while another 10% will be distributed to Angang employees.  

The remaining shares (approximately 20%) will be held by Henan Machinery Investment Group Co, a company wholly owned by the State-owned Assets Supervision and Administration Commission of Henan province and currently Angang's controlling shareholder.

The timing and schedule of the ownership restructuring remain uncertain because preliminary procedures including an audit need to be completed. Moreover, Angang will have to be openly listed on an assets and equity exchange in order to canvass potential investors, and it remains unclear whether qualified investors will participate in the deal, according to the post.

"Nothing is settled yet, though a few companies have shown interest and visited our plant to conduct their own investigations," an Angang official told Mysteel Global. "Internally, we are still working as per normal," he added.

Fangda Group and Delong Group, major privately-owned steelmakers both - like Shagang - with experience in mixed-ownership reforms of state-owned companies, have also shown interest in the deal, but as of now, the only suitor officially identified by Angang has been Shagang, the source familiar with Angang noted.

"It is highly possible that Shagang will eventually make the move," he said.

Shagang, one of China's top five steel producers and boasting a capacity of over 45 million tonnes/year, already owns a steelworks in Anyang city, namely Anyang Yongxing Special Steel Co. Though Shagang is mostly known as a maker of long products, it also produces hot coils and medium plates.

Source : Mysteel Global