A few days ago, Dalian Administration for Industry and Commerce issued a Business License to Dongbei Special Steel Group Co., Ltd. (DSSC), marking the general conclusion of the two-year high-profile bankruptcy reorganization of DSSC. As legal adviser of Shagang Group, JT&N formed a work team led by its Senior Partner Ketong Shi and consisting of lawyers Junpu Jia, Jian Mao, Ruixin Xu and Wanheng Zhong to participate in the whole process of DSSC reorganization.
Having been default on 10 bond transactions totaling RMB7.17bn for 11 consecutive times since March 2016, DSSC, the past special steel aircraft carrier, came into the public domain with the title king of bond default and became a hot potato among the state-owned enterprises in Liaoning Province, which attracted great attention from the relevant Chinese ministries and commissions.
Problems accumulated over the years cannot be resolved overnight, making it hard to sustain
DSSC can be regarded as the cradle of special steel in China. Headquartered in Dalian, it is a large special steel production enterprise established in September 2004 through reorganization of Dalian Iron and Steel Group founded in 1905, Fushun Special Steel Group founded in 1937 and Beiman Special Steel Group founded in 1957 (located in Heilongjiang Province). In the iron & steel history after the founding of the People’s Republic of China, DSSC has created numerous firsts: produced the first stainless steel, the first high-speed tool steel, the first high-strength steel and ultra-high strength steel, the first precision alloy, and the first high temperature alloy in China…… and provided important raw materials for the R&D of the first spacecraft, the first artificial satellite, the first missile, the first long-range launch vehicle, the first new aircraft, the first nuclear submarine and the first heavy tank in China. However, since the relocation of its Dalian Base in 2007, due to huge investment scale, excessive reliance on external financing, insufficient production capacity, low production efficiency and insufficient endogenous capital sources, DSSC has sustained huge debts. It is reviewed and confirmed that after reorganization, the effective debts are about RMB70bn (the reason for which is to be confirmed), the undeclared debts about RMB10bn, and the evaluated assets about RMB17mn. These problems accumulated over the years cannot be resolved by DSSC overnight, making it hard to sustain.
Rebirth of Dongbei Special Steel Group Co., Ltd. marked the end of the reorganization work
On October 10, 2016, Dalian Intermediate People’s Court (DIPC) ruled that DSSC and its two subsidiaries entered into the bankruptcy reorganization proceedings. Shortly afterwards, Beiman Special Steel Group Co., Ltd., a subsidiary of DSSC, also entered into the bankruptcy reorganization proceedings. After entering into the bankruptcy reorganization proceedings, DSSC, after several rounds of selection and negotiation, decided in July 2017 that Jiangsu Shagang Group Co., Ltd. (hereinafter referred to as Shagang Group) and Ningbo Meishan Bonded Port Area Jincheng Shazhou Equity Investment Co., Ltd. would act as the major investors and jointly invest together with Bengang Steel Plates Co., Ltd. in the reorganization of DSSC. Shagang Group would invest RMB4.5bn, accounting for 43% of the registered capital of the reorganized company. On August 10, 2017, DIPC decided to approve the plan for reorganization of DSSC. According to the reorganization plan, all equity of the original shareholders (except one (1) shareholder) will become zero. For the part less than RMB500,000, it may be paid off in full at the will of ordinary creditors; while for the part more than RMB500,000, business-type ordinary creditors and bond-type ordinary creditors may choose to be proportionally paid off in cash or convert their debts into equity, while finance-type ordinary creditors shall convert all their debts into equity. As more than 200 shareholders are willing to convert their debts into equity, DSSC should be changed from a limited company to a company limited by shares while a shareholding platform for control over the number of shareholders is being built. On October 12, 2018, Dalian Administration for Industry and Commerce issued the Business License to Dongbei Special Steel Group Co., Ltd. (DSSC), marking the general conclusion of the two-year high-profile bankruptcy reorganization of DSSC.
President Xi and Premier Li praised the rebirth and profit making of DSSC
Since Shagang Group was substantially involved in the production and operation of the company in September 2017, the declining production and operation situation of the company has been rapidly reversed, the internal and external environment has turned normal, the main production indicators have begun to improve, and the company has made profits for the first time since its relocation. There is no doubt that DSSC has achieved the rebirth and restored its sustainability and profitability through reorganization, marking the success of China’s first case of a private iron and steel enterprise taking over and reorganizing a large local state-owned steel enterprise, which has become a model in promoting the supply-side structural reform, revitalizing the old northeast industrial base and the mixed-ownership reform. During the Two Sessions held this year, Premier Li Keqiang fully recognized the bankruptcy reorganization of DSSC during his talks with the representatives of Liaoning Province. During his visit to Liaoning Province in this September, General Secretary Xi also praised the success of the mixed-ownership reform of DSSC.
Escorted by professional team
As legal adviser of Shagang Group, we formed a work team led by Senior Partner Ketong Shi and consisting of lawyers Junpu Jia, Jian Mao, Ruixin Xu and Wanheng Zhong to participate in the whole process of DSSC reorganization. In addition, Yan Fang, Director of JT&N Xi’an provided great support in this regard. The reorganization process of DSSC is complex and onerous. While conducting comprehensive in-depth due diligence, assisting with negotiations, formulating the reorganization plan and going through conventional bankruptcy reorganization proceedings, our lawyers have also assisted DSSC with the completion of military affairs review, anti-monopoly review and exemption from tender offer on the takeover of listed companies. As DSSC controls Fushun Special Steel Group Co., Ltd. (hereinafter referred to as Fushun Special Steel) listed on Shanghai Stock Exchange with a shareholding ratio of 30%, it is necessary to apply for exemption from tender offer on the takeover of listed companies and have such application finally approved. It is the second case in China that China Securities Regulatory Commission (CSRC) has approved the application for exemption from tender offer on the takeover of listed companies on the ground that Article 62 of the Measures for Administration of Acquisition of Listed Companies: other circumstances identified by CSRC for the purpose of adapting to the development and change of the securities market and protecting the legitimate rights and interests of investors applies to this case.
In addition, during reorganization of DSSC, Fushun Special Steel was found to have suffered losses for consecutive years and to have disclosed false information. So far, Fushun Special Steel has also entered into the bankruptcy reorganization proceedings. As the company’s legal adviser, we are taking active part in the proceedings.