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Hesteel may go cap in hand to shareholders
Posted on Tuesday, 12 March 2019 14:33
Hesteel, the Chinese iron and steel manufacturing conglomerate that is one of the largest globally, is working on a rights issue potentially worth up to CNY 8.00 billion (USD 1.19 billion) to repay debt.
This cash call, if it goes ahead, will be one of the largest of this type of capital increase announced in 2019 to date, according to Zephyr, the M&A database published by Bureau van Dijk.
Current plans comprise the issue of 3.19 billion shares – representing a 23.1 per cent post-offering stake - on a basis of 3:10 and the controlling stockholder has already committed to take part in the subscription.
As at 30th September 2018, the company had a consolidated asset-liability ratio of 71.6 per cent, which has increased in recent years due to the business expansion and is higher than the industry average.
In comparison, peers such as Baosteel, Angang Steel and Daye Special Steel had ratios of 47.6 per cent, 44.1 per cent and 41.6 per cent, respectively, at the end of September 2018.
The high asset-liability ratio restricts Hesteel’s financing ability and future development potential, but by using proceeds to repay interest-bearing debt, the company will improve its capital structure and solvency.
Following the rights issue, and based on the estimates suggesting it would fetch CNY 8.00 billion, the Shijiazhuang-headquartered manufacturer’s leverage could drop to as low as 67.7 per cent.
Hesteel is involved in the manufacture and processing of iron and steel – categorised into sheet, bar, wire and steel profile – and specialises in smelting vanadium-titanium steel and the production of vanadium items.
Products include cold rolled sheet, high-strength rebar, and pipeline steel, as well as automobile and home appliance plates, steel for nuclear power, and high-strength earthquake-resistant building materials.
Applications range from petroleum and railways to bridges, construction, power and transportation.
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