Baosteel Invests in Subsidiary of Maanshan Steel, Accelerating Asset Integration of Baowu Group

To achieve synergies and enhance market competitiveness, Baosteel (600019.SH) plans to invest 9 billion yuan in Maanshan Iron & Steel Co., Ltd. (hereinafter referred to as "Ma Steel Limited"), a subsidiary of Maanshan Iron & Steel Co., Ltd. (hereinafter referred to as "Ma Steel").

This evening, Baosteel announced its intention to invest 9 billion yuan in Ma Steel Limited, which will result in a 49% stake in the company upon completion of the transaction. Notably, as of the end of 2024, Ma Steel Limited's revenue was 70.66 billion yuan, but its net profit was -4.051 billion yuan, accounting for 86.95% of Ma Steel's total losses.

Since both Ma Steel and Ma Steel Limited are indirectly controlled subsidiaries of China Baowu, the controlling shareholder of Baosteel, this transaction constitutes a related-party transaction.

Baosteel stated that Ma Steel is one of the largest steel producers and sellers in China with a single production site, featuring a product structure of "special steel, wheel axles, long products, and sheets & plates." This related-party transaction aligns with Baosteel's strategic vision of "becoming the most competitive steel enterprise globally and the most valuable publicly listed firm for investment." It leverages the company's professional sector advantages, effectively enhances the competitiveness of both parties, achieves synergistic development and shared benefits, and further strengthens regional market influence and competitiveness.

Based on the financial data disclosed by both parties, Baosteel's audited total assets at the end of 2023 reached 376.051 billion yuan, with net assets attributable to shareholders of the publicly listed firm at 20.0325 billion yuan. Its audited operating revenue for 2023 was 344.5 billion yuan, with net profit attributable to shareholders of the publicly listed firm at 11.944 billion yuan. The company has not yet announced its 2024 performance, but as of Q3 2024, its net profit was 5.882 billion yuan, demonstrating strong profitability despite the industry downturn. In contrast, Ma Steel performed poorly during the industry downturn, with audited operating revenue of 81.817 billion yuan and net profit attributable to parent company owners of -4.659 billion yuan as of 2024, and cumulative losses exceeding 6.8 billion yuan from 2022 to 2024.

The specific details of the transaction are as follows: Baosteel plans to acquire a 35.42% stake in Ma Steel Limited held by Ma Steel for 5.139 billion yuan in cash, while simultaneously increasing its capital in Ma Steel Limited by 3.861 billion yuan in cash, with a total investment potentially reaching 9 billion yuan.

According to the evaluation results of the appraisal company, as of February 28, 2025, the net asset value of Ma Steel Limited under the asset-based method was 14.506 billion yuan, representing an increase of 1.977 billion yuan, or 15.78%, compared to the audited consolidated net assets attributable to parent company shareholders of 12.529 billion yuan. Compared to the audited standalone net asset book value of 10.077 billion yuan, the evaluation increased by 4.429 billion yuan, or 43.95%.

For Ma Steel, although its stake in Ma Steel Limited decreased from 100% to 51%, it still maintains a controlling position and will continue to consolidate Ma Steel Limited. Through Baosteel's investment, it will help optimize the capital structure, enhance capital strength, and provide financial support for future development. Additionally, leveraging Baosteel's resources and advantages will promote innovation in Ma Steel Limited's management and business models, enhancing its core competitiveness and overall strength.

Baosteel's investment in Ma Steel Limited, a loss-making asset, also drives the consolidation of the steel industry, which will have a profound impact on both companies and the overall industry landscape, potentially injecting new vitality into the industry.

However, the steel industry downturn has not yet ended, and this transaction faces numerous challenges. Effectively integrating the corporate cultures, management systems, and business processes of both parties to achieve true synergies is a significant challenge for Baosteel. Moreover, the complex and volatile market environment of the steel industry, including fluctuations in raw material prices and changes in market demand, may impact the future performance of Ma Steel Limited.