Tycoon Betting on British Steel Made First Fortune in Acid

(Bloomberg) -- Li Ganpo, the Chinese tycoon buying an ailing British steelmaker, is the head of a sprawling empire that started with skincare chemicals.

His company, Hebei Jingye Group Co., now counts iron and steel as its top business and this month agreed to acquire the assets of troubled British Steel in a deal that should safeguard thousands of jobs in the U.K. It’s an unexpected move for a steelmaker that’s small by Chinese standards -- 18th biggest -- and has previously focused on the domestic market.

“Jingye have been known to look around for acquisitions, but they have no obvious link to Europe so British Steel is a bit of a punt geographically speaking,” Tomas Gutierrez, a Shanghai-based analyst at Kallanish Commodities Ltd., said by phone.

It’s not the first expansion for the 70-year-old founder and chairman of Jingye, who now has sprawling business interests from pharmaceuticals to tourist resorts and 3-D printing.

Jingye and Li declined requests for comment in calls made to the company’s headquarters in Hebei, and to representatives in London.

Acid Business

Li’s first forays into business came alongside China’s move in the 1980s to encourage individual entrepreneurship, although his initial efforts faltered.

“There was a big public outcry across the whole Pingshan county” when Li, a government official, applied to start a business in 1985, he recounts in an article posted on Jingye’s website. That early cannery venture was quashed when the central government clamped down on officials running businesses.

Two years later, the policy was eased and Li started looking at the chemicals industry: specifically, salicylic acid that’s best known for its use in skincare.

Acid Reign

On Jingye’s website, he describes vowing to become the country’s dominant producer of salicylic acid after waves of overcapacity fueled boom-to-bust cycles. “I thought the only way out was to be one of the biggest in the nationwide market,” he said. After pushing out or taking over rivals in China, his firm eventually became the largest in the world.

The steel business started in 1995, and Li cites the Asian financial crisis of 1998 and global economic collapse of 2008-2009 as turning points for the better, when he managed to take advantage of ailing markets to expand the company’s clout.

In 1998, with steel prices collapsing, he committed to a zero-inventory strategy and doubling of output value. “I personally wrote a passionate ‘fight the crisis, expand the enterprise’ article, to explain my thinking and encourage morale,” he said. Achieve 10 years’ work in one year, staff were told.

In 2008, China’s steel market again felt the ripples of an international slowdown. Jingye’s response included a 70% salary cut -- which it says was proposed by staff -- and using the savings to fund raw material purchases. That saw the company through to 2009, when China’s massive stimulus measures supercharged the market.

Modest Size

Jingye produced about 11.25 million tons last year, according to the World Steel Association, putting Li’s group firmly in the mid-tier of China’s industry. The biggest producer, China Baowu Steel Group, makes 67 million tons. British Steel, the U.K.’s second-biggest supplier, produces about 3 million tons a year.

The acquisition gives Jingye the company’s Scunthorpe plant, plus other assets in the U.K., France and the Netherlands. British Steel was put into liquidation in May, just three years after being acquired by private equity firm Greybull Capital LLP for 1 pound, and struggled in the face of weak demand, surging costs and cheaper imports.

Jingye operates 15 blast furnaces and is mainly focused on producing so-called long products like reinforcement bar that are the bread-and-butter of China’s old economy. But it’s also developed more advanced products such as high-grade thin strips. Li has already pledged to spend 1.2 billion pounds to upgrade plants and machinery and boost efficiencies at British Steel.

“Jingye is a cost competitive blast furnace producer in Hebei, but Scunthorpe is not Hebei, there’s some pretty clear differences,” Gutierrez from Kallanish said.

“I would be fairly skeptical until I’ve seen their plan. They have talked about cutting costs, but what are they going to keep running, what are they going to close, what do they want do differently? It’s not clear what Jingye brings specifically to any of those issues.”

U.K. labor unions said they need detailed discussions with the buyer. Yet, Jingye’s interest “rightly demonstrates that they believe that British Steel can have a sustainable future,” the steelworkers’ trade union Community said on Monday.

--With assistance from Reinie Booysen, Elena Mazneva and Emma Dong.

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Alpana Sarma

©2019 Bloomberg L.P.

With assistance from Bloomberg