singshan Holding Group Co., the
nickel giant owned by billionaire Xiang Guangda, is in advanced talks to sell
some of its stainless-steel assets in Indonesia to China Baowu Steel Group
Corp. as part of a strategic review, according to people familiar with the
negotiations.
State-controlled Baowu, the world’s biggest crude steel
producer, is likely to acquire controlling stakes in some integrated production
lines owned by Tsingshan at Indonesia Morowali Industrial Park in Central
Sulawesi province, the people said, asking not to be identified discussing
confidential information.
The talks started in April, and the assets for sale include
production plants of stainless steel and nickel pig iron. A deal could be worth
$3 billion to $4 billion, one of the people said, adding that the terms could
change. The two sides have already agreed on several key terms and are
currently discussing details such as operations and sales after the
acquisition, the people said.
Xiang shot to prominence recently after his bets that nickel
prices would fall caused a historic squeeze on the London Metal Exchange
earlier this year. The decision to sell some of his Indonesian assets was
triggered in part by Xiang’s rethinking of his company’s future during the
short squeeze, when he faced billions of dollars in mark-to-market losses, said
the people. A deal with Baowu would strengthen ties with one of China’s largest
state-owned commodity producers while still allowing Tsingshan to retain
substantial exposure to the steel business.
A representative for Baowu declined to comment in an email,
while Tsingshan didn’t respond to multiple requests seeking comment.
A successful transaction would boost Baowu’s annual
stainless-steel production capacity to over a combined 13 million tons by
adding 1 million tons in Indonesia, according to Bloomberg’s calculation based
on the company’s existing capacity and the plants that they’re in talks to acquire.
Baowu has ambitions of raising stainless steel output to 15
million tons by end-2023 and to 18 million tons by end-2025, via jointly-owned
mills with Chinese local and overseas companies. Its operations span western
Xinjiang to eastern Shandong to southern Guangdong in China.
Baowu has also become China’s biggest stainless steel maker
through a series of acquisitions in a consolidation push backed by the Chinese
central government. It took over Shanxi Taigang Stainless Steel Co. in 2020 and
has bought controlling stakes in other smaller Chinese domestic rivals over the
past few years.
China is the world’s biggest stainless steel producing and
consuming country, thanks to rapid economic growth in the past few decades that
buoyed demand for everything from anti-corrosion equipments to home appliances
to tableware. Self-made entrepreneurs like Xiang contributed to the surge in
supplies by tapping a new method of making the alloy using laterite ores
starting around 2000, which also cut production costs. Stainless steel is
traditionally processed from refined nickel and carbon steel.
Xiang, known as “big shot” in Chinese commodity circles,
attained fame for his audacity in placing big derivatives bets on nickel
prices, but his shorts went spectacularly wrong amid an unprecedented price
spike in the metal in March. Eventually, he walked away from the crisis as
nickel prices fell after a series of measures taken by his banks and the London
exchange. Xiang also told executives that his company had the support of the
Chinese government, even though there was no clear evidence of intervention by
authorities or state-owned enterprises to bail out of trouble.
Tsingshan’s decision to sell the Indonesian assets to Baowu was
also made after years of close business ties with Chinese major steelmakers,
the people said, adding that teaming up with Baowu is likely to bolster
Tsingshan’s position and help ease cash-flow pressures, they added.
To be sure, Tsingshan will still retain its dominance in
Morowali with more than 3 million tons of annual capacity left to itself after
a sale, while Baowu will still be dependent on Tsingshan’s management in the
industry park. As an early explorer of the site, Tsingshan has been a host in
nickel-focused Indonesia for dozens of investors who followed later, including
Zhejiang Huayou Cobalt Co. and Chinese battery metals maker GEM Co.
In the event of a deal, Baowu won’t be the only investor in
Tsingshan’s industrial empire. Taiwanese metals fabricator Walsin Lihwa Corp.
announced a deal to acquire 29.5% of a Tsingshan facility in Indonesia Weda Bay
Industrial Park for $146 million earlier this month, following another similar
deal involving a $200 million investment.
Xiang has been diversifying and expanding his businesses in
recent years with a steel mill in Africa and a lithium plant in the South
America. Ruipu Lanjun Energy Co., a Tsingshan unit that produces batteries for
electric vehicles is seeking to list in Hong Kong this year