China's Hebei Signs Agreement to Buy Serbian Steel Plant

19 April 2016

China's Hebei Iron & Steel Group (000709.SZ) signed a 46 million euro ($52 million) agreement on Monday to buy a loss-making Serbian steel plant in the first major privatization by Prime Minister Aleksandar Vucic's government, days before an election.

The agreement was signed by Hebei Chairman Yu Yong at an open-air ceremony at the plant attended by Vucic and hundreds of workers and dignitaries, which ended with celebratory fireworks.

Hebei was sole bidder for the Zelezara Smederevo mill which employs 5,050 people and posted a net loss of $113 million last year. It has pledged to invest $300 million in the plant.

Vucic said he hoped Chinese President Xi Jinping would visit Serbia at the end of June by when he said the sale of the plant, which is subject to approval by the Serbian anti-monopoly commission, should be completed.

In an apparent reference to the British steel crisis, Vucic said he had heard "a leader of one of the biggest European countries" had asked Hebei to take over that country's steel plants which were in trouble, but the Chinese firm had replied a few days ago that it would go to Serbia first "and then we will see."

Europe's steel industry suffers from over-capacity, which European steelmakers blame partly on a glut of cheap Chinese steel. Britain is battling to save its steel industry after India's Tata Steel (TISC.NS) put its British operations up for sale.

Yu said Hebei planned to preserve all the jobs at the Serbian plant. It would introduce its latest technology to "make Smederevo a model project for cooperation in central and Eastern Europe," he said.

The European Commission has said it is in close contact with Serbia to check whether the sale complies with an EU-Serbian agreement that said Serbian state aid to the steel sector must end by February 2015.

The workers wore T-shirts with photos of Vucic, who is seeking re-election on April 24, and the words: "Thank you for believing in us."

"It was uncertain whether we would continue to work. Now that has been resolved," worker Goran Maksimovic told Reuters.

Hebei plans to raise the plant's production - 875,000 tonnes last year - to 2.1 million tonnes a year in three to four years.

Privatising inefficient state firms was a condition of Serbia's 1.2 billion euro ($1.35 billion) loan from the International Monetary Fund, approved in 2015, but previous attempts to sell off the biggest state companies have failed.

Vucic has said the deal is expected to push Serbia's growth to up to 4 percent in 2017, more than double the official forecast for this year.


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