New York-based private equity firm WL Ross & Co and China Baowu Steel Group, through its Hwabao Investment arm, will lead a consortium of investors to form an investment fund to acquire steel industry assets in China, the US company said in an announcement.
A joint venture will be established to facilitate the vehicle with participation of two other shareholders, cross-border collaboration initiative US-China Green Fund and China Merchants Finance Holdings.
The JV, named Four Rivers Investment Management Company, will manage the vehicle to make investments totalling RMB40 billion to RMB80 billion ($5.8-11.6 billion), the announcement added.
The target of the new facility will be to “focus on the development of a long term plan to enhance the commercial and environmental viability of the Chinese steel industry” by investing in underperforming steel industry assets.
“The goal is to restructure distressed balance sheets and create operational efficiencies through process improvements and capacity rationalisations,” the announcement said.
A committee will be formed to steer the investments, which will include members of WL Ross & Co, Baowu and senior management of the JV. In addition, each of the four shareholders will have representation on the board of directors.
To be headquartered in Shanghai, the JV will be chaired by Dr Weihua Ma, former CEO and president of China Merchants Bank. Meanwhile, Zhuping Zhou, chairman of Hwabao, will serve as CEO of the JV.
WL Ross & Co, which was acquired by Invesco, has a track record of investing in the steel industry through creating the International Steel Group in 2002. The company was then acquired by Netherlands-based Mittal Steel in 2005.
The latest agreement comes in just a couple of months after the US applied anti-dumping taxes on some types of Chinese steel.
“With roughly 50 per cent of global capacity, China clearly represents the fulcrum of the steel making industry. By establishing this vehicle (…), we believe we will be well positioned to create long-term value through a transformational investment approach,” said Stephen Toy, senior managing director and co-head of WL Ross & Co.