Toast of the town

Not British anymore

The moment last year that Jingye Group confirmed its offer for the fallen industrial giant British Steel was captured by smartphone at a rough-and-ready pub in Scunthorpe in northern England (see WiC474).

Footage from the venue saw the Chinese delegation promising everyone a drink as part of the celebrations. This received a bigger cheer than the revelation they were rescuing the stricken steel maker. But Jingye has been crucial in saving British Steel from oblivion since it went into compulsory liquidation last May. Now there’s relief that five months of talks have concluded with a takeover at an undisclosed price thought to be £50-70 million.

In completing the bid, the Hebei-based steelmaker will save more than 3,000 British jobs and it is promising a further £1.2 billion in new investment.

Jingye is buying the steelworks at Scunthorpe and two other steel mills in the north of England. The rationale is that the steel from the newly acquired mills is mostly shaped steel, rails and wire rods, which complements Jingye’s main products of rebar, medium plate, coil and round steel. “British Steel’s products have a high technological content, which helps to improve the level of scientific and technological research and development and core competitiveness of the Jingye Group,” Cao Xijun, its executive vice president, also told Securities Daily.

A plant at Hayange in northern France that makes steel for the French railway network has been stripped out of the purchase. It was one of the rare profitable performers under British Steel’s ownership but the railway contracts prompted the French government to demand a veto on strategic grounds.

In the meantime it has been trying to drum up alternative offers.

Even getting to the partial deal has been difficult, Cao told Securities Daily: “In the acquisition process we have faced many challenges, such as the differences between Chinese and Western cultures, different approaches to business, and the coordination of research and development work across different factories.”

Buying a few drinks at the local hostelries was a clever part of the Chinese charm offensive. “I spoke to one of them who spoke good English – probably better than me in fact – and he seemed like a really genuine dude,” one of the regulars at the pub where Jingye announced the deal told the Grimsby Telegraph.

“Obviously they’re here for business and to make money. But the fact they have taken to the town and come here and shown up in local businesses around the town centre can only be good.”

Another motivation for buyers in deals like these is access to overseas markets at a time when the government is trying to reduce overcapacity in China.

Four years ago another steelmaker from Hebei took over a struggling plant in Serbia, which has been turned into one of the country’s largest exporters. Last summer the Chinese announced another $120 million investment in new technology at the same facility.

Most steelmaking isn’t very profitable in Europe, Securities Daily acknowledges. But that’s partly because the labour costs are too high, it reckons, expressing confidence that Chinese “management efficiency” will deliver wider benefits.

Maybe that should be on the radar of a few of the drinkers in the local taverns. And Yang Kunhe, head analyst at Pacific Securities Nonferrous Steel, offered another word of caution about the investment commitments from Jingye, which he calculated as three to five years its standard profits. “Jingye Group is not a listed company and it may have to find a solution in terms of financing channels,” he added, noting that fundraising options for firms in sectors with overcapacity are getting more limited in China.

Could that promise of £1.2 billion in new investment turn out to be elusive?

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