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Steel shares halted pending merger
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SHARES of China’s two state-owned steel companies, Baoshan Iron & Steel Co and Wuhan Iron & Steel Co, were suspended from trading on the Shanghai Stock Exchange yesterday after saying their parents are preparing to merge in a bid to cut overcapacity in the industry.
Baosteel Group, China’s second-largest steelmaker, is “planning a strategic restructuring with Wuhan Iron & Steel Group,” both groups’ listed units said in separate statements to the Shanghai bourse late on Sunday. More details of the merger will be released after five trading days.
The merger proposal has been approved by the State-owned Assets Supervision and Administration Commission, according to digital news outlet The Paper. The Paper disclosed that the proposed merger seeks to slash overcapacity in the steel industry.
Last year, 300 million tons of overcapacity were reported by the China Iron & Steel Industry Association, and analysts speculated that some closures and acquisitions may occur among Chinese steel companies.
The merger between Baosteel and Wuhan Steel will see the integrated group becoming the largest steel corporation in China, taking up 7.5 percent of the steel market.
The merger is expected to result in layoffs, a source from Baosteel, who refused to be named, told Shanghai Daily.
“Production per capita is too low at Wuhan Steel,” the source said. “The merger would partially ease financial burden by cutting more than half of the staff there.”
Ma Guoqiang, chairman of the board of Wuhan Steel, said at a Chinese political conference in March that 50,000 employees would be laid off.
In 2015, China’s leading steel firms lost 64.5 billion yuan (US$9.7 billion) in revenue. Wuhan Iron & Steel Co had a net annual loss of 7.5 billion yuan last year.
Despite a net profit of 1 billion yuan last year, it was the worst performance for Shanghai-based Baoshan Iron & Steel in the past 18 years.
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