Xi Lin Steel looks to restructure
According to an official from State-owned Assets Supervision and Administration Commission of Hei Longjiang Province, Xi Lin Iron and Steel Company (Xi Lin Steel) will be restructured.
Insiders disclose that Tongde Group will spend RMB 250 million ($31 million) to purchase 70 percent of the net assets of Xi Lin Steel and bear all its debts. In addition, Tongde Group promised that the work force would not be reduced by more than 10 percent in the three years after the acquisition. Furthermore, the group said it would invest another RMB 800 million to RMB 1 billion ($99-124 million) over the next five years to develop Xi Lin Steel.
The two-million-metric ton Xi Lin Steel is the largest state-owned steelmaker in Hei Longjiang Province. Tongde Group is a private pharmaceutical enterprise with total assets of RMB 1 billion.
Tongde Group is interested mainly in Xi Lin Steels
iron ore. Sources report that Xi Lin Steel owns three large mining companies with several hundred million metric tons of
iron ore reserves. The
iron ore is not only abundant, but also superior in quality. The convenient transportation also adds to its value.
The development of the iron and steel industry in Hei Longjiang Province lags behind other regions. There are not many steelmakers in Hei Longjiang Province, and their output is small. On the other hand, the demand for steel products in that region is high. While the output of Xi Lin Steel accounts for 70 percent of the total volume in Hei Longjiang Province, it does not even satisfy 20 percent of total demand. Thus, the market exhibits great potential.
It is apparent that the acquisition will face some difficulties. What Xi Lin Steel needs urgently is capital. However, Tongde Group will face great capital pressure with total assets of RMB 1 billion, as the settlement allowances for staff in Xin Lin Steel will cost several hundred million yuan.
Another problem Tongde will face is that these two companies are situated in two different provinces and are engaged in different industries. They will face greater restructuring risks in the light of the current downward trend.
SteelOrbis Shanghai