News / Baosteel, WISCO Get Regulators' Approval For Merger
Date: 2016-09-24
Baosteel, WISCO Get Regulators' Approval For Merger
Two of China's largest steel makers have received regulatory approval to merge by the end of this month — part of Beijing's plan to cut overcapacity and nurture bigger, more-competitive industry leaders.
The planned merger of China's second-largest steel maker, Shanghai-based Baosteel Group Corp., and smaller rival Wuhan Iron and Steel (Group) Corp. (WISCO), won approval for the deal in late August from the State-owned Assets Supervision and Administration Commission (SASAC), which overseas state-owned companies. The plan has been submitted to the State Council, China's cabinet, for final review and approval, which is expected later this month, several sources close to the merger told Caixin.
The merger will create an industry behemoth with annual capacity exceeding 60 million tons and over 700 billion yuan ($105 billion) in total assets. The new company will replace Hebei Iron and Steel Group as China's largest steel maker and make Baosteel/Wuhan Iron the world's second-largest, ranking only behind Luxembourg-based ArcelorMittal.
Shanghai-listed Baosteel and WISCO have suspended trading in their respective shares since June 26, citing "strategic restructuring" in separate filings to the Shanghai Stock Exchange. The concurrent release hinted at the long-speculated merger of the pair, echoing Beijing's calls to trim excess steel production capacity.
Xu Shaoshi, head of the National Development and Reform Commission, told the media on June 26 that the merger was meant to cut overcapacity. Chinese President Xi Jinping vowed again during the G20 business summit on Sept. 3 that China is determined to cut 100 million to 150 million tons of steel capacity by 2020.
Under the government pressure, Baosteel and WISCO have announced their targets. Baosteel will cut 9.2 million tons of production capacity in three years. WISCO will shrink 4.42 million tons of steel production and 3.19 million tons of iron production this year, laying off or resettling about 10,000 workers.
According to the merger plan, WISCO, which has been losing a lot of money in recent years, will be merged into Baosteel and become a subsidiary of the new company. Baosteel will issue shares to WISCO's shareholders for a swap and WISCO will delist after the merger.
The merger comes as China's steelmakers are struggling with weakening demand at home and overseas. An index by the China Iron and Steel Industry Association shows the average price of steel dropped by more than 32 percent by the end of 2015 from a year earlier.
Observers have been casting doubt on the government-orchestrated merger between Baosteel and WISCO, including one government official, who asked not to be named but who closely watches the reform of state-owned enterprises.
"Will Baosteel, an industry leader, be dragged down by WISCO so that '1+1' becomes lose-lose?" he asked a Caixin reporter rhetorically.
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