Serbia to sell Zelezara Smederevo to China’s HBIS

Serbia to sell Zelezara Smederevo to China’s HBIS
By Ivana Jovanovic in Belgrade April 6, 2016

Serbia’s economy ministry has accepted a binding bid from China’s Hebei Iron and Steel Group (HBIS) for the acquisition of Zelezara Smederevo, the country’s only steel mill and its second-largest exporter. The Chinese company will pay just €46mn for the company, but plans to invest an additional $980mn over the next two years, prime minister Aleksandar Vucic said on April 5.

The agreement will provide a boost for Vucic in advance of Serbia’s general election on April 24, as HBIS plans to keep on all 5,000 workers at the mill. HBIS was expected to bid for Zelezara after striking a deal with Serbian officials last year, but its confirmation is important given the current slump in steel prices, when many steelmakers are struggling. It comes just days after India’s Tata Steel announced plans to sell its UK steelworks.

At an election rally on March 5, Vucic called the contract with HBIS “the best thing that has happened to Serbia in the last decade”.

“Do you know what is written in the contract? It is written that HBIS will invest an additional $980mn in next two years. Do you know what that means for our country?” Vucic said at the Serbian Progressive Party election rally in the town of Pancevo on April 5, Tanjug reported.

The deal is expected to be signed within the coming days. HBIS was the only company to submit a valid bid. The price offered was slightly higher than the minimum price set when the Serbian economy ministry launched a tender process for the sale of Zelezara on March 4, with a starting price at €45.7mn.

The Serbian government said in an April 5 statement that HBIS plans to offer employment to all the company’s current employees, who will be offered professional development and training. Zelezara is the main employer in the area of the town of Smederevo, some 50km north of Belgrade on the Danube River.

The economy ministry’s April 5 statement said only that the sale commission had opened the financial offer from HBIS in the presence of the bidder's representatives, and found that it was filed in accordance with the public invitation and that it meets all the requirements.

“Upon a proposal from the commission, the ministry made a decision declaring the only bidder as the buyer,” the statement said.

After obtaining an opinion from the department for the prevention of money laundering, in accordance with the law on privatisation, an agreement on the sale of assets of Smederevo steelworks will be concluded, the ministry said.

In 2015 Zelezara’s exports were 58.8% higher in annual terms and amounted to €319mn. Zelezara returned to the position of Serbia's second largest exporter in February 2016 with exports valued at €18.4mn, after it fell to third place in January, finance ministry data show.

Zelezara was sold to United States Steel Corporation (US Steel) for $33mn in 2003, but was bought back by the state in 2012 for a token price of $1. A re-privatisation attempt by US-based Esmark fell through in February 2015.

Netherlands-based HPK Engineering took over Zelezara's management in March 2015, pledging to boost production and make it profitable within six months, aided by $20mn of investments in raw materials. The new management has also been preparing the company for a privatisation attempt in 2016.

In October 2015, work restarted at the second blast furnace, four years after US Steel shut it down in late 2011.