Mergers forged in tense steel industry

Bac Viet Steel, Vietnam Italy Steel, Song Da Steel, Phuc Tien Trade Manufacture  and Tien Len Steel Corporation are among the domestic firms looking to restructure to gain a competitive edge in a bitter tough market.

Bac Viet Steel Company took the lead by recently announcing a plan to team up with four Japanese companies to set up a joint venture in Bac Ninh province’s Que Vo Industrial Park.

The venture with investment capital of $258 million will see Nippon Steel & Sumikin Metal Products  hold a 48 per cent stake, while Sumitomo Corporation, Sumisho Tekko Hanbai and Kyoei Steel will hold 22, 3 and 3 per cent, respectively. The remaining 24 per cent belongs to Bac Viet Company

The restructuring will help Bac Viet Steel become one of the biggest steel producers in Vietnam.

Pham Chi Cuong, chairman of Vietnam Steel Association (VSA), said Vietnam’s steel enterprises faced tough times and industry restructuring was the only way the keep this hyper-competitive industry from buckling. “Mergers and acquisitions (M&A) are considered the most effective form for restructuring the steel sector,” he said.

Economic conditions, Cuong added, provided opportunities for foreign partners who have financial resources and a long-term outlook to enter Vietnam’s steel sector and helped their new domestic partners gain a competitive edge.

The steel volume per capita in Vietnam reached about 130 kilogrammes and the figure must be 200-300kg if the country wanted to be considered an industrial nation.

Vietnam Italy Steel is heading down a different road by merging with Song Da Steel as it has approved a plan to issue 19,220,577 new shares and swap shares with Song Da Steel, as a part of a merger plan.

Under terms of the deal, Vietnam Italy Steel will hold 100 per cent of Song Da shares and the swap ratio will be 1-for-1.13, meaning that every 1.13 Song Da shares will be converted into one Vietnam Italy Steel share.

“In our opinion, the merger will help Vietnam Italy Steel establish an integrated steel-making process from scrap steels to billets and then to finished steel products,” said a Ho  Chi Minh City Securities Corporation steel analyst. “And it will still like to raise its steel rolling capacity to 450,000 tonnes per year in future.”

Domestic steel-makers Phuc Tien Trade and Tien Len Steel Corporation are also planning to merge, with Tien Len Steel to issue additional shares to swap for Phuc Tien Trade shares, according to Phuc Tien’s plan in 2012. Under that, Phuc Tien Trade will become a wholly-owned subsidiary of Tien Len Steel.