Investors ‘Optimistic’ on Overhaul for Struggling Steelmaker

The loss-making Chongqing Iron & Steel Co. Ltd., which warned of possible bankruptcy earlier this year as it tries to reorganize, said a group of potential new investors is “optimistic” about its revamp that is part of China’s bigger effort to consolidate the nation’s bloated steel sector.

The group of potential new investors include industry leader Baowu Steel Group Corp. and WL Ross & Co., which was founded by U.S. Commerce Secretary Wilbur Ross and later sold to asset management giant Invesco. That pair and two other partners are forming Siyuanhe Fund, which together with Chongqing Strategic Emerging Fund, would have billions of dollars to invest in the steelmaker.

Chongqing Iron & Steel said it has been “proactively organizing and coordinating communication and discussion” between itself and its creditors and potential new investors as it works out its restructuring.

“On 29 September 2017, the (reorganization) administrator of Chongqing Iron & Steel received letters from Siyuanhe … and Chongqing Strategic … stating that (they) were optimistic about the development prospect of Chongqing Iron & Steel upon its judicial reorganization and they intended to jointly invest in … this reorganization,” the company said in a filing to the Hong Kong stock exchange late on Friday.

The Siyuanhe Fund, which also goes by Four Rivers Investment Management Co., was being set up in Shanghai with 40 billion yuan ($6 billion) to 80 billion yuan to invest in underperforming assets. Its other two partners are U.S.-China Green East Investment Management Co. Ltd. and a unit of China Merchants Group Corp. Ltd., with each of the four partners holding about a quarter of the fund.

China is filled with many such underperformers from the steel industry, nearly all of those big state-owned enterprises, following a rapid buildup during China’s modernization that has left the nation oversupplied. Both the U.S. and European Union have taken anti-dumping measures against Chinese steel, leaving the country with few options other than to consolidate the sector. Baowu is itself the product of one such merger last year through the combining of major steelmakers in the cities of Shanghai and Wuhan.

Chongqing Iron & Steel cautioned that no deals with the potential new investors have been signed yet, and that talks are ongoing with both those funds as well as its creditors, who briefly threatened to force the company into bankruptcy earlier this year.

“The administrator will continue to organize and coordinate negotiations with the main creditors and the prospective investor(s) over the reorganization scheme and the cooperation,” it said.

Contact reporter Yang Ge (geyang@caixin.com)