Baogang to wmbark on major diversification
BAOSHAN Iron and Steel Corp, which claims to be China's most profitable steel maker, is embarking on a 63 billion yuan (about HK$58.6 billion) expansion programme.
The company, also known as Baogang, said it had to grow to cope with domestic and foreign demand.
A decade after it went operational Baogang has mapped out ambitious plans to become a diversified conglomerate with interests in banking, securities, insurance, trading, manufacturing and transportation.
The group has earmarked about 63 billion yuan for the next phase of expansion, aiming to raise annual output capacity by nearly 40 per cent to 11 million tonnes of steel by the end of the decade.
The expansion essentially involves the construction of one more blast furnace, two converters, a high-powered electric arc furnace, four mills, two casting machines and a coking plant.
Located on the outskirts of Shanghai, Baogang will finance the expansion from internal reserves, overseas borrowing and government funding.
Chairman Li Ming said: 'We've been very profitable and so are able to fund a great part of the expansion spending through our internal reserves.' He said internal financing would account for 36 billion yuan, external borrowing a further 20 billion yuan, and the remaining seven billion yuan would come from government subsidies.
Unlike competitors squeezed by rising costs and imports, Baogang said its profit continued to rise because of lean operations and high productivity.
Like competitors Capital Iron and Steel and Maanshan Iron & Steel, Baogang had 10 per cent of the country's domestic steel market of 90 million tonnes last year.
This excluded imports of 20 million tonnes.
Industry analysts said Baogang was known for its product and service quality but suggested that its robust profit was also because of strong central and municipal government support.
Last year, it recorded sales of 25 billion yuan and pre-tax profit of about eight billion yuan on steel output of 7.5 million tonnes.
The group said it had assets worth 29.5 billion yuan, while the assets-to-debt ratio was 22 per cent.
'Compared with the standard 70 per cent liability ratio, we are very healthy and can afford to borrow much more,' Mr Li said.
Baogang hoped to raise output to eight million tonnes this year.
After a staff cut of between 6,000 and 13,000 employees, output per worker will rise to 600 tonnes from 120 tonnes.
Mr Li said the move to consolidate its position in the core business was the key to the company's goal of becoming a conglomerate by 2010.
Baogang will merge its trading units into a a comprehensive trading firm, expand into the manufacturing of related products, enlarge its finance company to take in banking, securities and insurance, and set up a transportation business.
'These are our plans but they will have to be approved by the central government,' Mr Li said.