Explainer-Why Chinese stainless steel giant Jiangsu Delong faces bankruptcy reorganisation

BEIJING (Reuters) – A Chinese court is considering whether to proceed with bankruptcy reorganisation for Jiangsu Delong Nickel Industry, the country’s third-largest stainless steel producer.

Following are details about the company and its difficulties.

WHAT IS JIANGSU DELONG?

Founded in 2010 by Dai Guofang, Delong was a comeback for Dai, who nearly two decades ago spent five years in detention, accused of tax evasion after expanding capacity at his Jiangsu Tieben Steel without obtaining needed approvals, media reports at the time said.

Delong is based in Xiangshui county in Jiangsu province, where it operates three smelting plants. It has stainless steel capacity of 5 million metric tons in China and another 2.5 million in Indonesia, according to an analyst estimate.

Its 2022 revenue was 169.5 billion yuan ($23.4 billion), according to business information provider Qichacha.

WHAT IS LIKELY TO HAPPEN?

Several industry insiders said they expect Jiangsu Delong’s Chinese operations ultimately to be absorbed at least partially by state-owned enterprises. China prizes stability and seeks to avoid messy corporate failures with ripple effects.

The four Delong-related firms facing reorganisation are now under government supervision and operating normally, according to a filing this week by Xiamen Xiangyu, a large commodities firm controlled by the government of the coastal city of Xiamen, which has had extensive dealings with Delong.

Two Delong suppliers also told Reuters that they were now dealing directly with government entities.

Delong could not be reached for comment.

WHAT IS THE WIDER IMPACT?

Little, thus far, industry watchers said, partly because Delong’s difficulties had been known, and because of expectations for a government solution.

“For companies like Jiangsu Delong, it’s too big to fail. Also, bankruptcy reorganisation is not something new in China … there were some similar cases in the past that showed minimal impact on the production side,” said Kevin Bai, a Beijing-based analyst at consultancy CRU Group.

Indeed, Jiangsu Delong was itself the saviour of another company in bankruptcy proceedings when it took over Jiangsu Shengte Steel Co in 2020.

“We have not seen much volatile movement in prices of stainless steel these days, showing that the market is relatively calm in the face of this issue,” Bai said.

A worker at Gunbuster Nickel Industry, a Delong operation in Indonesia that was the site of a deadly clash last year, said it was operating normally.

Agus Tjahajana Wirakusumah, a special staff at Indonesia’s energy and mineral resources ministry, said the government is monitoring the proceedings.

HOW DID DELONG GET TO THIS POINT?

Jiangsu Delong grew quickly and like several Chinese companies invested heavily in Indonesia as the Southeast Asian country’s metals and mining sector mushroomed.

Falling ferro-nickel prices and rising material costs late last year at a 48%-owned Indonesia joint venture contributed to an annual net loss there estimated at 1.8-2.2 billion yuan, according to a filing by a unit of China First Heavy Industries Co Ltd, a shareholder in the operation.

Since early this month, Jiangsu Delong stakes in subsidiaries worth more than 4 billion yuan have been frozen by Chinese courts, according to company information provider Qichacha.

WHERE DO PROCEEDINGS STAND?

Four firms controlled by Xiangshui county, where Delong is based, have asked a court there to approve bankruptcy reorganisation for Delong and three related firms.

The court will appoint an administrator to draft a reorganisation plan, in the event that it approves the proceedings. It set a July 29 deadline for would-be administrators to apply for the role.

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