A buyer for British Steel is welcome but what’s Jingye’s strategy? | Nils Pratley

It’s hard to see why the Chinese firm wants to take over a loss-making business in a tough market

Half the woes for steelmakers in Britain derive from dumping into world markets by Chinese producers, or so we have been told for a couple of decades. So it is a strange sort of rescue for British Steel that ownership should pass to a little-known Chinese conglomerate, Jingye, offering a vague promise to invest a large sum.

Any buyer is better than none, of course, since the effects of irreversible closure of the Scunthorpe steelworks would be appalling. Top of the list would be 4,000 jobs, with another 20,000 in the supply chain. Then there would be the huge environmental clean-up costs.

Jingye counts as a more credible owner than Greybull Capital, the private equity outfit that took British Steel into administration. Yet it is still hard to understand why a Chinese group, which is only the world’s 37th largest producer of steel, wants to own a loss-making producer on the other side of the world.

Tata Steel couldn’t make financial sense of what it called its “long products” business, so gave it away to Greybull for £1 in 2016. Industry conditions haven’t notably improved for high-cost European producers since then. The price of iron ore, of the two key raw materials, is high. And complaints about energy and environmental costs, the other half of the industry’s troubles, are constant.

Perhaps Jingye wants overseas assets to balance the volatility in its home market. Or perhaps it calculates that a purchase of British Steel will open up opportunities to export to the UK some of its current products. But those theories are speculative. This £50m purchase may just be a hopeful punt in which the downside risks are deemed tolerable.

It is why the plan to invest £1.2bn over the next decade should be taken with a pinch of salt. Grand ambitions to modernise a facility are easy to announce, but commitment can only be measured over time.

Much the same can be said about the UK government’s contribution to making the deal happen. Thousands of steel jobs can be described as “saved”, which is useful during an election campaign, but we haven’t been told the accompanying level of UK state support or the terms on which it could be offered.

So believe the long-term visionary stuff when it happens. On day one of a deal that is yet to be signed, there is a whiff of short-termism.

Naspers is right not to be too hungry for Just Eat

Don’t bid against yourself until you have to. It’s a sensible tactic in the hostile takeover game and explains why South African group Naspers, via its Dutch-based unit Prosus, is sticking to its guns as it pursues Just Eat.

Prosus’s first approach at 710p a share in cash, or £4.9bn, was rejected by Just Eat’s board three weeks ago, and was panned by some of the target’s shareholders, but the same pitch was made formal on Monday. The missing ingredient in the offer was the binding word “final”. The bidder, presumably, will show its true hand later.

The South Africans can afford to be relaxed at this stage because the rival share-based bid from Takeaway.com is struggling for credibility. After a plunge in Takeaway’s share price, it values Just Eat at closer to 600p. More to the point, the scope to improve the terms is limited. Offering Just Eat’s shareholders a larger slice of the pizza might simply create more pain in Takeaway’s share price, which would be self-defeating.

Prosus, in other words, is in pole position. It can try to frighten Just Eat’s shareholders with scary tales about the risks from Uber and Deliveroo and hope that the “certainty” of cash becomes more appealing. The 710p offer is probably too low to succeed and Just Eat’s board is honour-bound to resist at the level. But anything above 750p must stand a chance of winning.

Sirius Minerals digs deep for potash mine funding

The junk bond market said no to financing Sirius Minerals, the mega potash mine under the North York Moors, but here comes chief executive Chris Fraser with a new idea.

He wants to split the financing into two stages, with $600m (£460m) initially required to fund the riskiest part of construction – sinking the deep mine shafts. When that has been done, Sirius can look for another $2.5bn in a couple of years’ time to get to completion.

It’s a plan, which is something. But it probably requires somebody – say, a sovereign wealth fund – to write a cheque for at least half the $600m. Not impossible, but any would-be financier will surely want a very large chunk of the shares. Sirius’s army of small investors should not get too excited.

Contributor

Nils Pratley

The GuardianTramp

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