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Experts cast shadow on BaoSteel Wuhan merger-The 18th China(Guangzhou)Int'l Stainless Steel Industry Exhibition
9/28/2016 Stainless Steel Exhibition |
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me goes for its listed arm, Wuhan Steel, which comes under listed unit Baoshan Iron & Steel. That means the Wuhan camp would get to preserve its autonomy and establishment at all levels. The addition of two new layers pointed to more red tape, power play and inefficiency, not the closure of excess capacity.
Don’t bet on big brother making an order to cut. If that works, what is the need of merging? The only promising achievement of the merger is to keep debt-ridden Wisco afloat with Baosteel’s top credit rating and lower financing cost.
Wuhan Steel’s numbers are telling. A decade of aggressive plant and mine acquisitions has left it with a gearing ratio of 248 per cent. With a CNY 7.5 billion loss last year and mounting account receivables, it has been relying on bank loans and bonds to pay its bills. It has to repay CNY 27 billion in bank borrowing within a year. If that sounds small, think about its parent’s CNY 120 billion loan that is due in a year.
The merger will increase Baoshan Iron’s gearing ratio to 136 per cent, but it is a comfortable enough guarantor for the Wuhan camp’s refinancing.
All these would be more tolerable if Baoshan Iron was buying at a deep discount. But it is not. Baoshan Iron is getting a 10 per cent discount to Wuhan Steel’s trading price, which the former’s independent directors described as fair and just. The reality is Baosteel is selling its shares at a 33 per cent discount to its book value and buying its bleeding Wuhan peer at 1.025 times book value.
-The 18th China(Guangzhou)Int''l Stainless Steel Industry Exhibition
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