Baowu China mengulurkan tangan untuk membantu Chongqing Steel dengan penambahan modal sebesar 1 miliar yuan untuk "mengisi darah"

China Business Network

Reporter Chen Jiayun from China Jing News, Beijing reports

As it is in a deep adjustment cycle in the steel industry, the old-established steel enterprise Chongqing Iron & Steel (601005.SH) is easing capital pressure through a rights issue.

Recently, Chongqing Iron & Steel released an announcement stating that it plans to issue shares in a targeted manner to Huabao Investment, a wholly-owned investment subsidiary under the controlling shareholder China Baowu Iron & Steel Group Co., Ltd. (hereinafter referred to as “China Baowu”), to raise no more than 1 billion yuan. All proceeds will be used to supplement working capital and repay bank loans.

Regarding the issue of capital liquidity, a person from Chongqing Iron & Steel told reporters from “China Business News” that according to the company’s latest disclosed financial statements, the cash on hand is sufficient, the cash flow situation is good, and there is no tightness in funds. As for the specific proportion of the rights-issue funds to be used for bank debt repayment, the person said that since the disclosure milestone has not yet been reached, no specific details have been published; however, there is indeed a related capital arrangement plan.

Ge Xin, deputy director of the research center at Lange Steel Network, said in an interview with reporters that China Baowu’s increase in holdings is not a simple capital operation, but rather a strategic choice based on the national industrial layout and the development of the Sichuan–Chongqing region. Chongqing Iron & Steel was previously brought into the Baowu system through capital mergers and acquisitions; enhancing the control rights of a single major shareholder is an inevitable measure for China Baowu to achieve controlling operation over it and to deepen industrial synergy.

A rights issue of 1 billion yuan

According to the “2025 Annual Offering of A-shares to Specific Targets (Draft for Filing)” released by Chongqing Iron & Steel, the issue price for this rights issue is 1.32 yuan per share. The company plans to issue no more than 758 million shares. The total amount of funds raised is capped at 1 billion yuan. After deducting issuance expenses, all proceeds will be used to supplement working capital and repay bank debts, with no involvement of any new capacity project construction.

Chongqing Iron & Steel stated that, affected by the steel industry’s capital-intensive nature where listed companies operate, as well as the impact of updates and iterations in technical equipment and environmental protection requirements, listed companies have a relatively high demand for liquidity, and especially under the backdrop of a weak cycle in the steel industry, they need relatively sufficient funds to enhance operational stability.

Guo Kai, a researcher at Zhongyan Puhua, told reporters that since the funds raised are used entirely to supplement working capital and repay bank loans, it is a typical liquidity rescue and debt-relief arrangement. Coupled with the controlling party subscribing to the offering in full, the essence is to “boost the company’s blood supply and extend its life.” This financing can only help the company stabilize its basic operations and buy time for subsequent adjustments; it does not directly go into strategic plans such as transformation projects or technological upgrades. Therefore, it does not have substantive strategic transformation attributes.

In its announcement, Chongqing Iron & Steel pointed out that the rights issue will help further improve the liquidity level of the listed company, optimize the capital structure, enhance the listed company’s total assets and net assets scale, reduce the asset-liability ratio and financial expenses, and improve its ability to withstand risks. At the same time, it also aligns with the policy direction of the country to increase the proportion of direct financing, strengthen the ability of financial services to serve the real economy, and lower the leverage ratio of state-owned enterprises.

This rights issue is a related-party transaction. The issuing target of the rights issue is Huabao Investment, which is a wholly-owned financial investment platform under China Baowu, the controlling shareholder of Chongqing Iron & Steel. As of the date of the announcement of the rights-issue proposal, China Baowu and its concerted parties collectively hold 29.51% of Chongqing Iron & Steel’s shares. After the completion of this rights issue, its shareholding ratio will increase to 35.07%. Currently, this rights-issue plan has obtained approval from the board of directors and the shareholders’ meeting of Chongqing Iron & Steel and the reply from China Baowu. It still needs approval from the Shanghai Stock Exchange and registration approval from the China Securities Regulatory Commission before it can be formally implemented.

A person from Chongqing Iron & Steel introduced to reporters that after the completion of this rights issue, China Baowu’s shareholding ratio will first exceed 30%, further consolidating the major shareholder’s control rights over the company. This lays a more solid foundation for the company’s subsequent efforts in governance optimization, industrial layout, and so on.

In response, Ge Xin said that China Baowu’s increase in holdings is not merely a capital operation, but a strategic choice based on the national industrial layout and the development of the Sichuan–Chongqing region. Chongqing Iron & Steel was previously incorporated into the Baowu system through capital mergers and acquisitions, and enhancing the control rights of a single major shareholder is an inevitable move for China Baowu to achieve controlling operations over it and to deepen industrial collaboration.

Ge Xin said that this enhancement of control rights by China Baowu carries dual strategic significance in both regional layout and product upgrades. From the regional perspective, in recent years, the Sichuan–Chongqing region has been among the top in the country in the development of infrastructure construction and the automobile manufacturing industry. In particular, the new energy vehicle industry has become a frontrunner in the sector, driving a large and diversified demand for steel products. Chongqing is located at a key transportation node in the southwest; once the relevant transportation lines and the Pinglu Canal are connected, it can connect southward to the Maritime Silk Road to Southeast Asia, and northward via Xi’an by land to radiate to Xinjiang along the “Belt and Road,” making its strategic location advantages prominent. China Baowu’s increase of control over Chongqing Iron & Steel is precisely to strengthen its market control in this core region and seize the dividends from regional economic development.

From the product and industrial development perspective, Ge Xin mentioned that Chongqing Iron & Steel indeed previously had a problem of a single product structure. However, in recent years, supported by the technology empowerment from China Baowu’s Research Institute, the company has continuously promoted product line upgrades, making ongoing breakthroughs in high-end steel such as corrosion-resistant and corrosion-erosion-resistant steel, plate products, and automotive steel, gradually moving away from reliance on a single product. This increase in holdings by China Baowu will further provide Chongqing Iron & Steel with comprehensive support such as technology, research and development, and funding, helping it adapt to the needs for infrastructure upgrades and manufacturing transformation in the Sichuan–Chongqing region.

“On the front of future development, as control rights become further stabilized, China Baowu will also provide stronger support to Chongqing Iron & Steel in terms of funding, technology, research and development, and so on, helping Chongqing Iron & Steel break through its current development bottlenecks.” A person from Chongqing Iron & Steel said.

Losses for four consecutive years

Behind this large-scale targeted share issuance are the operating results of Chongqing Iron & Steel’s continued losses in recent years.

According to financial reports, from 2022 to 2025, Chongqing Iron & Steel has already posted losses in attributable net profit for four consecutive fiscal years, with cumulative losses over the four years exceeding 8.4 billion yuan.

In 2022, Chongqing Iron & Steel achieved operating revenue of 36.562 billion yuan, with an attributable net profit loss of 1.019 billion yuan. In 2023, the loss expanded further: although full-year operating revenue increased to 39.318 billion yuan, attributable net profit loss reached 1.494 billion yuan. In 2024, full-year operating revenue fell to 27.244 billion yuan, and attributable net profit loss was 3.196 billion yuan. In 2025, although the magnitude of losses narrowed somewhat, the company still did not escape the situation of losses: full-year operating revenue was 24.002 billion yuan, and attributable net profit loss was 2.722 billion yuan.

In response, Guo Kai said that Chongqing Iron & Steel’s consecutive losses mainly stem from pressures such as the downturn in the industry cycle and the company’s own operational shortcomings. The steel industry shows a pattern of “three highs and three lows”: falling steel prices and iron ore running at high levels compress profit margins. As a southwest long-process steel plant, Chongqing Iron & Steel is far from coastal raw material sources and the eastern main consumption markets. Its logistics costs remain high, and its ability to transmit costs is weak. Its product structure is mainly mid-to-low-end plate products, with a low share of high value-added varieties, leading to clear disadvantages in regional competition.

Ge Xin also said that one of the core reasons for Chongqing Iron & Steel’s losses is its relatively high production cost, which is a key shortcoming constraining its profitability. At the same time, in earlier years the company’s product structure was single, making it difficult to adapt to diversified market demand, further intensifying operational pressure. From the perspective of the overall industry environment, the steel industry is in a cyclical trough; market supply-demand imbalance and price fluctuations also bring external pressure to corporate operations.

However, Ge Xin also emphasized that Chongqing Iron & Steel has unique development advantages and can gradually resolve its cost and operational difficulties. The Sichuan–Chongqing region has rich non-ferrous mineral resources. Compared with the problem of high costs for steel products in the ferrous category, the local non-ferrous resource cost advantage is evident. Moreover, the production of high-end plates and high-quality steel has a high reliance on non-ferrous resources, providing Chongqing Iron & Steel with natural advantages in terms of minerals and geography for developing high-end steel products. In addition, the Sichuan–Chongqing region is a net inflow area for steel; local steel supply cannot fully meet market demand, so a large amount of steel needs to be purchased from outside the region. The market potential within the region is huge. With optimization of the company’s product structure, it is expected to fully tap local market demand and turn around the loss situation.

When discussing Chongqing Iron & Steel’s future development, Ge Xin believes that under China Baowu’s comprehensive empowerment, together with the fast-growing regional economy in Sichuan–Chongqing and the strategic opportunities of “Belt and Road” transport nodes, the company’s development prospects are promising. On one hand, after control rights are consolidated, China Baowu will provide more support in management, technology, and industry-chain coordination, helping the company reduce costs and increase efficiency, and improve its product matrix. On the other hand, leveraging the growth dividends from regional industries such as infrastructure construction, new energy vehicles, and equipment manufacturing, Chongqing Iron & Steel can precisely align with demand for high-end steel, gradually realize a transformation from a single-product model to diversified, high-end products, break through its current operational bottlenecks, and achieve high-quality development.

Guo Kai believes that Chongqing Iron & Steel needs to “address the issue on three fronts” to break the impasse. First, relying on China Baowu’s synergy, it should integrate resources of Xichang vanadium-titanium magnetite, open up low-cost raw material channels, and optimize the logistics layout; second, upgrade product structure, focus on demand from southwest infrastructure construction, automobiles, and equipment manufacturing, increase the proportion of high value-added plates and special steel, and strengthen regional pricing power; third, reduce costs and improve efficiency by increasing the proportion of self-generated electricity and shortening the smelting cycle.

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