Mounting losses, delisting drive Chongqing Steel out of sector

China’s debt- ridden Chongqing Iron and Steel is drawing up radical restructuring plans that will see the firm exit the steel industry and shift its focus to more lucrative sectors like finance, it said on Thursday.

In a notice filed to the Shanghai Stock Exchange, Chongqing Steel blamed the downturn in the economy, severe industrial overcapacity, soaring labor costs and persistently low steel prices for its predicament.

It said it would sell its steel assets to the Yufu Group, an entity run by the local Chongqing municipal government. It then aims to acquire high- quality assets in the financial and industrial investment sectors from the group. The plans have not yet been finalized.

The firm suffered net losses of almost 6 billion yuan ($ 901.47 million) in 2015 and nearly 1 billion yuan in the first quarter of 2016. Its shares in Shanghai have been suspended since June.

After borrowing billions of yuan to expand production, China’s steel firms are strug- gling with heavy debts and persistent losses. The country is now aiming to bring capacity down by 140 million tons over the 2016 to 2020 period.

According to government estimates, China has 1.13 billion tons of crude steel capacity, more than 300 million tons higher than total output last year.

The government is setting up dedicated asset management firms for the steel and coal sectors to help shut capacity and handle the closure of “zombie enterprises” – those that would not survive without loans or government support.

The central government is also encouraging State- owned enterprises that are not specialist steel or coal producers to withdraw completely from the two sectors.

According to a recent study by Renmin University, 51.4 percent of China’s listed steel firms could be defined as zombie companies because they have not been able to repay debts.