Steel-Maker Shagang Changes Tack With Internet Acquisitions

(Beijing) — Chinese steel-maker Jiangsu Shagang Group has made a significant $3.8 billion deal to buy two internet data firms, including the owner of Global Switch, as the firm seeks to explore new industries amid ongoing overcapacity within the steel sector.

Shenzhen-listed Shagang, which supplies specialized products to infrastructure and vehicle builders, said it planned to acquire Jiangsu Qingfeng Investment Management Co. Ltd. and Beijing Daily Tech Co. Ltd. for a combined 25.8 billion yuan ($3.8 billion).

Jiangsu Qingfeng owns a 49% stake in multinational data-center company Global Switch, while Beijing Daily Tech is a domestic provider of data services.

The deal will extend Shagang’s key businesses from steel to data, which it hopes will improve its profitability, the company said in a filing to the Shenzhen Stock Exchange on Thursday.

The steel industry has been experiencing overcapacity since 2015 due to a slowdown in the economy, which has hit investment in the property market especially hard, where steel is much in demand. The lull has helped slow the sector to single-digit growth, and the volume of new projects has dropped to its lowest level since 2009.

Shagang in 2015 reported a loss of 80 million yuan, down from a profit of 35 million yuan the year before. After the country rolled out a national strategy in 2016 to trim excess capacity, especially in the steel and coal sectors, companies have recovered slightly. Shagang generated a profit of 220 million yuan last year, but risks still linger.

Shagang’s move to open up a new revenue channel in data is also a result of the emerging boom in online steel trading platforms. There are about 300 such platforms in China, with one of the largest being Ouyeel, of which Shagang is a shareholder.

Ouyeel is a subsidiary of the country’s largest steel-maker, the state-owned Baowu Steel Group. More than 38 million tons of steel were traded last year on Ouyeel, Baowu said.

Contact reporter Coco Feng (renkefeng@caixin.com)