Cost still a hurdle for Jingye’s British Steel deal

Chinese private-sector mill Jingye’s proposed acquisition of British Steel may not yet be a done deal as concerns remain about its high cost.

“The deal is a long way off from being concluded. I do not think Jingye would pay as high a price as £70mn to buy British Steel, as nearly no one else is interested in buying this company to begin with,” said a Chinese source in close contact with Jingye officials and familiar with the deal negotiations.

The purchase agreement announced last week does not guarantee the sale.

Jingye was one of the buyers interested in the initial bids for British Steel. Its executives visited the Scunthorpe site in July. The Turkish military pension fund Ataer Group was named a preferred bidder in August but its two-month exclusivity period expired without a deal.

Now Jingye is the frontrunner, but initial agreements with Chinese companies have not always led to deals. Chinese steel producer Hesteel entered into an agreement to buy Tata Steel’s Singapore assets earlier this year but the deal fell through. Jingye’s proposed acquisition of Malaysian steel slab producer Eastern Steel has also not yet been finalised.

“Corporate culture in the UK is quite dissimilar to China and southeast Asia. I doubt culture was a key reason why the Turkish company did not conclude the British Steel deal,” the source said.

The conclusion of a deal of this size and high profile will require financing by China’s state banks and there is little clarity on the financing of the deal by Jingye, the source said. Jingye is not even among the 10 largest Chinese mills, ranking as the 37th largest steel producer in 2018 with 11.25mn t production, according to the World Steel Association.

British Steel was part of Tata Steel UK, before finding a new owner in Greybull Capital in 2016. The company went into liquidation six months ago. It produced 2.8mn t of steel in 2018 and has a capacity of 4.5mn t.

Another area of concern for investors is the lack of clarity on the regulatory environment for British steel producers after the country’s exit from the EU.

Tough environmental regulations and negotiating with local trade unions could prove difficult, a Jingye executive told Argus. But Jingye’s product portfolio aligns itself with British Steel in long products and the acquisition can guarantee market share in the UK to Jingye, he said.

Chinese governments, especially in polluted provinces such as Hebei, where Jingye is located, have encouraged mills to shift capacity overseas. But few have so far set up and operated overseas plants. The only China-owned steel mill in Europe is in Serbia where Hesteel acquired an existing company, while Guangxi Beibu owns Malaysia’s Alliance Steel.