China Baowu Extends a Helping Hand to Chongqing Iron & Steel with a 1 Billion Yuan Capital Increase to "Replenish Blood"

Sourced from: China Business News (中国经营网)

A reporter from China Business News, Chen Jiayun, reports from Beijing

With the steel industry in a deep adjustment cycle, the long-established steelmaker Chongqing Iron & Steel (601005.SH) is using a private placement to ease funding pressure.

Recently, Chongqing Iron & Steel released an announcement saying it plans to issue shares to Huabao Investment, a subsidiary under the actual controller China Baowu Iron & Steel Group Co., Ltd. (hereinafter “China Baowu”), via a directed share issuance. The company will raise funds of no more than 1 billion yuan, all of which will be used for replenishing working capital and repaying bank loans.

Regarding the issue of liquidity, a person from Chongqing Iron & Steel told a reporter from China Business News that, based on the company’s latest disclosed financial statements, the company has ample cash on hand and a healthy cash flow position, and there is no problem of tight funding. On the specific proportion of the private placement funds to be used to repay bank debts, the source said that since it has not yet reached the disclosure timeline, no specific details have been released yet, but there are indeed related capital arrangements and plans.

Ge Xin, deputy director of the research center at Lange Steel (兰格钢铁) Network, said in an interview with a reporter that China Baowu’s increase in holdings is not a purely financial capital move, but 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; strengthening the control of a single major shareholder is an inevitable step for China Baowu to achieve controlling operation of the company and deepen industrial coordination.

1 billion yuan private placement

According to Chongqing Iron & Steel’s “2025 Annual Memorandum on the Proposed Offering of A Shares to Specific Targets (Draft for Filing)” (《2025年度向特定对象发行A股股票募集说明书（申报稿）》) released by the company, the offering price for this private placement is 1.32 yuan per share. The number of shares to be issued will be no more than 758 million shares. The maximum total fund-raising amount is 1 billion yuan. After deducting issuance expenses, the funds will be fully used for replenishing working capital and repaying bank debt, and will not involve any construction of new capacity projects.

Chongqing Iron & Steel stated that, due to the steel industry’s capital-intensive nature and the impact of updates and iterations in technology and environmental protection requirements, listed companies have relatively high demand for working capital. Especially against the backdrop of a weak-cycle period in the steel industry, they need comparatively sufficient funds to improve operational stability.

Guo Kai, a research fellow at CPI Research (中研普华), told the reporter that all the proceeds from this fund-raising will be used for replenishing working capital and repaying bank loans, which is a typical liquidity rescue and debt de-risking arrangement. Combined with the controlling party’s full subscription, the essence is to “inject vitality to keep the company going.” This financing can only help the company stabilize its basic operations and gain time for subsequent adjustments; it has no direct allocation to transformation projects, technology upgrades, or other strategic initiatives. Therefore, it does not have substantive strategic transformation attributes.

In the announcement, Chongqing Iron & Steel said that the private placement will help further improve the liquidity level of the listed company, optimize the capital structure, enhance the company’s total assets and net assets, reduce the asset-liability ratio and financial expenses, and improve its risk resilience. It also aligns with the policy direction of increasing the proportion of direct financing, enhancing the ability of financial services to support the real economy, and reducing the leverage ratio of state-owned enterprises.

This private placement constitutes a related-party transaction. The issuance target is Huabao Investment, which is a wholly owned financial investment platform under the controlling shareholder China Baowu. As of the announcement date of the private placement plan, China Baowu and its acting-in-concert parties collectively hold 29.51% of shares of Chongqing Iron & Steel. After the completion of this private placement, its shareholding ratio will increase to 35.07%. Currently, the private placement plan has been approved by the board of directors and the shareholders’ meeting of Chongqing Iron & Steel and has received a reply from China Baowu. It still requires approval by the Shanghai Stock Exchange and registration approval and consent from the China Securities Regulatory Commission before it is formally implemented.

A source from Chongqing Iron & Steel told reporters that after this private placement is completed, China Baowu’s shareholding ratio will exceed 30% for the first time. The controlling major shareholder’s control over the company will be further strengthened, laying a firmer foundation for the company’s subsequent efforts in governance optimization, industrial layout, and related areas.

In response, Ge Xin said that China Baowu’s increase in holdings is not a purely financial capital operation, but a strategic decision 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; strengthening the control of a single major shareholder is an inevitable measure for China Baowu to realize controlling operations and deepen industrial coordination.

Ge Xin pointed out that China Baowu’s increased controlling stake carries dual strategic significance: regional layout and product upgrading. From a regional perspective, in recent years the Sichuan-Chongqing region has been among the leaders nationwide in the development of infrastructure and the automobile manufacturing industry. In particular, the new energy vehicle industry has become a front-runner in the sector, driving massive and diversified demand for steel. Chongqing is located at a key transportation hub in Southwest China; after relevant transport routes and the Pinglu Canal are connected, routes can connect southward to the Maritime Silk Road to Southeast Asia, and northward via Xi’an by land to link with the “Belt and Road,” radiating to Xinjiang. The strategic location advantage is significant. China Baowu increasing control over Chongqing Iron & Steel is precisely to strengthen market control in this core region and seize the dividends of regional economic development.

From the perspective of products and industrial development, Ge Xin said that Chongqing Iron & Steel indeed previously had a problem of a single product structure. However, in recent years, supported by the technology empowerment of the China Baowu Research Institute, the company has continued to advance product line upgrades. It has made ongoing breakthroughs in high-end steel products such as corrosion-resistant and corrosion-erosion-resistant steel, plate products, and automotive steel, gradually reducing reliance on a single product. This time, China Baowu’s increase in holdings will further provide Chongqing Iron & Steel with full-spectrum support including technology, R&D, and funding, helping it adapt to the Sichuan-Chongqing region’s infrastructure upgrading and manufacturing transformation needs.

“Looking ahead in terms of future development, as control is further consolidated, China Baowu will also provide stronger support to Chongqing Iron & Steel in areas such as funding, technology, and R&D, helping it break through its current development bottlenecks,” a source from Chongqing Iron & Steel said.

Four consecutive years of losses

Behind this large-scale private placement is Chongqing Iron & Steel’s operating performance of persistent losses in recent years.

According to financial report data, from 2022 to 2025, Chongqing Iron & Steel has already recorded 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 36.56B yuan and an attributable net profit loss of 1.02B yuan. In 2023, the loss widened further. Although full-year operating revenue increased to 39.32B yuan, attributable net profit loss reached 1.49B yuan. In 2024, full-year operating revenue fell to 27.24B yuan, and attributable net profit loss was 3.2B yuan. In 2025, although the loss narrowed somewhat, it still failed to escape the loss-making predicament. Full-year operating revenue was 24B yuan, and attributable net profit loss was 2.72B yuan.

In response, Guo Kai said Chongqing Iron & Steel’s consecutive losses are mainly attributable to pressures such as the downturn in the industry cycle and shortcomings in its own operations. The steel industry has a “three highs and three lows” pattern: falling steel prices and iron ore running at a high level squeeze profit margins. As a Southwest long-process steel plant, Chongqing Iron & Steel is far from the coastal raw material end and the main consumption markets in eastern China. Its logistics costs are high and its ability to pass costs through is relatively weak. Its product structure is mainly mid- to low-end plate products, with a low proportion of high value-added varieties, resulting in obvious disadvantages in regional competition.

Ge Xin also said that one of the core reasons for Chongqing Iron & Steel’s losses is its high production costs, which is a key shortcoming constraining profitability. At the same time, the company’s product structure was single in early years and could not well adapt to the market’s diversified needs, further exacerbating operational pressure. From the broader industry environment, the steel industry is in a cyclical trough. Market supply-demand imbalances and price volatility also bring external pressure to companies’ operations.

However, Ge Xin also emphasized that Chongqing Iron & Steel has unique development advantages and can gradually resolve its cost and operational predicament. The Sichuan-Chongqing region has abundant non-ferrous mineral resources. Compared with the problem of higher costs for black-steel products, local non-ferrous resource cost advantages are evident. High-end plate products and high-quality steel production rely more heavily on non-ferrous resources, which provides a natural advantage in terms of mineral resources and geography for Chongqing Iron & Steel to develop high-end steel products. In addition, the Sichuan-Chongqing region is a net inflow area of steel. Local steel supply cannot fully meet market demand; a large quantity of steel needs to be purchased from other regions. The potential in the local market is huge. As the company optimizes its product structure, it is expected to fully tap local market demand and reverse the loss situation.

When discussing Chongqing Iron & Steel’s future development, Ge Xin believes that with full empowerment from China Baowu, combined with the rapid economic development of the Sichuan-Chongqing region and strategic opportunities at “Belt and Road” transportation nodes, the company’s development prospects are promising. On the one hand, once the controlling stake is stabilized, China Baowu will provide more support in management, technology, and industrial chain coordination, helping the company reduce costs and increase efficiency and improve its product matrix. On the other hand, by leveraging the growth dividends of industries such as regional infrastructure, new energy vehicles, and equipment manufacturing, Chongqing Iron & Steel can precisely meet the demand for high-end steel, gradually realize a transformation from single products to diversified and high-end products, break through its current operating bottlenecks, and achieve high-quality development.

Guo Kai believes that for Chongqing Iron & Steel to break the deadlock, it needs to take “three-pronged measures.” First, leveraging China Baowu’s coordination to integrate the Xichang vanadium-titanium magnetite resources, open up low-cost raw material channels, and optimize the logistics layout. Second, upgrading the product structure by focusing on demand from Southwest infrastructure, automobiles, and equipment manufacturing, increasing the proportion of high value-added plate products and special steels, and strengthening regional pricing power. Third, reducing costs and improving efficiency by increasing the proportion of self-generated power and shortening the smelting cycle.

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