Why a US$3.3 billion merger between Citic’s specialist units adds steel to China’s self sufficiency ambitions
- Daye Special Steel agrees to buy 86.5 per cent stake in Xingcheng Special Steel for 23.18 billion yuan
- Shares in Daye rise in Shenzhen, Citic stock boosted in Hong Kong
Shares in Chinese financial-to-industrial conglomerate Citic gained on Thursday after Daye Special Steel, in which it owns a 58.1 per cent stake, agreed to buy a 86.5 per cent stake in Citic-controlled Xingcheng Special Steel for 23.18 billion yuan (US$3.3 billion).
The reverse takeover by Shenzhen-listed Daye, announced in a stock exchange filing late on Wednesday, represents the largest restructuring at state-owned Citic in three years. Citic, which is listed in Hong Kong and is China’s largest conglomerate, is creating an industry leader. It said in a statement the transaction would help to “unlock the true value” of its special steel business, enhance its disclosure and transparency, and bring “greater synergies across the business”.
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The merger between Daye and Xingcheng will enhance the overall value of its steel assets and broaden their financing options, which could improve China’s production capacity for higher grade steel products and reduce import reliance, analysts said.
“The restructuring will see the majority of Citic’s best-quality special steel assets come under one listed specialised vehicle,” said Li Hongmei, head of content at consultancy Mysteel Global. “This will bolster the combined operations’ fundraising capability.”
She said the deal comes as China’s overall steel sector closes in on a peak in its latest industry upswing, which began in 2016.
The restructuring will see the majority of Citic’s best-quality special steel assets come under one listed specialised vehicle
Based in Huangshi, in central China’s Hubei province, Daye makes a wide range of alloy-steel products used in railway, tools, new energy, automobiles, mining, oil and gas, chemicals and electricity sectors. Xincheng, which is based in Jiangyin, in the eastern Jiangsu province, produces steel used for manufacturing gears, bearings, springs, various structural alloys used in ships and ocean engineering, as well as boilers and other engineering machinery.
