Baosteel Group
Baosteel Group - Governance with Chinese Characteristics
1. DO YOU THINK THE BAOSTEEL GROUP SHOULD CONSOLIDATE ALL OF THE GROUP’S ASSETS INTO A SINGLE PUBLICLY-LISTED COMPANY OR REMAIN A TWO-TIERED STRUCTURE?
To be able to argue whether the Baosteel Group should consolidate the entire Group’s assets into a single publicly-listed company or remain a two-tiered structure one first needs to review the underlying situation, Baosteel was faced with.
In order to stay competitive on the increasingly fierce global steel market Baosteel was required to not only advance in technology but also to increase its output. To reach its aggressive targets, Baosteel continued its quest for domestic acquisitions. In 2008 Baosteel set up a new company which was authorized to oversee two existing state-owned enterprises: the Shaoguan Iron & Steel Group and the Guangzhou Iron & Steel Group. Each of the two enterprises controlled a listed subsidiary.
By acquiring these two companies Baosteel Group could increase its output as the new company had the permission to build a new 10-million-ton steel-making base in Zhanjiang City. The new base in Zhanjiang City was promising as it would solve the lack of steel-making facilities in Guangdong, save money due to the shorter distance to Australian iron ore sources and face a ready market with Honda’s and Toyota’s manufacturing facilities demanding their flat rolled steel. They needed, however, to modernize the enterprises, eliminate the obsolete capacity and shut down environmentally critical operations.
Besides the favorable effects of the Guangdong project it also raised difficult governance issues. The first issue was how and whether to respond to minority investors in the Baoshan listed subsidiary who were asking why the project was being pursued by the Group and not the listed company. Baosteel officials decided to develop the project under the group in order to not harm the performance of the listed subsidiary Baoshan. As the
1. DO YOU THINK THE BAOSTEEL GROUP SHOULD CONSOLIDATE ALL OF THE GROUP’S ASSETS INTO A SINGLE PUBLICLY-LISTED COMPANY OR REMAIN A TWO-TIERED STRUCTURE?
To be able to argue whether the Baosteel Group should consolidate the entire Group’s assets into a single publicly-listed company or remain a two-tiered structure one first needs to review the underlying situation, Baosteel was faced with.
In order to stay competitive on the increasingly fierce global steel market Baosteel was required to not only advance in technology but also to increase its output. To reach its aggressive targets, Baosteel continued its quest for domestic acquisitions. In 2008 Baosteel set up a new company which was authorized to oversee two existing state-owned enterprises: the Shaoguan Iron & Steel Group and the Guangzhou Iron & Steel Group. Each of the two enterprises controlled a listed subsidiary.
By acquiring these two companies Baosteel Group could increase its output as the new company had the permission to build a new 10-million-ton steel-making base in Zhanjiang City. The new base in Zhanjiang City was promising as it would solve the lack of steel-making facilities in Guangdong, save money due to the shorter distance to Australian iron ore sources and face a ready market with Honda’s and Toyota’s manufacturing facilities demanding their flat rolled steel. They needed, however, to modernize the enterprises, eliminate the obsolete capacity and shut down environmentally critical operations.
Besides the favorable effects of the Guangdong project it also raised difficult governance issues. The first issue was how and whether to respond to minority investors in the Baoshan listed subsidiary who were asking why the project was being pursued by the Group and not the listed company. Baosteel officials decided to develop the project under the group in order to not harm the performance of the listed subsidiary Baoshan. As the