The controversy over the "Baotou Steel System" continues: whether the proposal of rare earth related transactions has been provoked by speculation, and the unilateral change of steel slag price has been accused of default

China Times

2024-05-26 00:03Published on the official account of Beijing China Times

For a long time, the related party transactions of "Baotou Steel" have been complicated. Recently, the related transactions of Baotou Iron and Steel Co., Ltd. (600010, SH), Northern Rare Earth (600111, SH) and Baotou Iron and Steel Group Energy Conservation and Environmental Protection Technology Industry Co., Ltd. (hereinafter referred to as "Baotou Iron and Steel Energy Conservation") have attracted market attention. Among them, a related party transaction related to Baotou Iron and Steel Co., Ltd. was rejected, which led to speculation about the rare earth transactions of the two giants; In addition, without the deliberation and consent of Baotou Iron and Steel Energy Conservation and other strategic investors, Baotou Iron and Steel Group unilaterally proposed that its subsidiaries would no longer trade steel slag to Baotou Iron and Steel Energy Conservation Subsidiaries free of charge, resulting in a sharp decline in Baotou Iron and Steel Energy Conservation's performance in the first quarter, and Baotou Iron and Steel Energy Conservation investor AVIC TEDA (836263, BJ) was directly accused of breach of contract.

For the related party transaction proposal was rejected, Baotou Iron and Steel Co., Ltd. told the "China Times" reporter that the proposal was rejected, and we are also looking for the reasons, there may be shareholders who fail to understand the relevant policy adjustments in place, which should have nothing to do with the related transactions of rare earths that the market is concerned about. The trading model of rare earth concentrate has been recognized by regulators and downstream companies, and the related-party transactions between the two listed companies are now very fair.

For the free change of steel slag of Baotou Iron and Steel Group into compensation, Northern Rare Earth told the "China Times" reporter that although Baotou Iron and Steel Energy Conservation is its holding subsidiary, he is not very clear about Baotou Iron and Steel Energy Conservation's unilateral action. AVIC TEDA told the "China Times" reporter that Baotou Steel Group's approach does not conform to the provisions of the previous mixed reform agreement, and the two parties are currently negotiating, whether it will take litigation and other ways to solve it in the future, which needs to be determined according to further circumstances.

For such phenomena, industry experts believe that intra-group related party transactions should follow the basic principles of openness and fairness, honesty and credibility, reasonableness and voluntariness, fairness and fairness, and equivalent compensation, and determine the transaction price according to the normal market fair price at the time of actual transactions. At the group company level, it is necessary to strengthen the coordination and management of brother companies, establish a sound internal communication mechanism and decision-making procedures, and avoid conflicts of interest.

Brother company's rare earth related transaction proposal is eye-catching

Northern Rare Earth and Baotou Iron and Steel Co., Ltd. are brother companies of Baotou Iron and Steel Group. At present, there are no rare earth mines in the north of the rare earth, and the rare earth concentrate is mined by Baotou Iron and Steel Co., Ltd. The two brother companies have formed an upstream and downstream relationship in the rare earth industry and have been engaged in related party transactions all year round.

On the evening of May 13, Baotou Steel Co., Ltd. released the results of the 2023 annual general meeting of shareholders held on the same day, and the proposal on the implementation of related party transactions in 2023 and the prediction of daily related party transactions in 2024 was not passed, with 315 million votes against, accounting for 72.4996%, of which Baotou Steel Group abstained from voting.

It is worth mentioning that the proposal shows that in 2024, the predicted amount of related party transactions between Baotou Steel Co., Ltd. and Northern Rare Earth will exceed 10.6 billion yuan, while the actual transaction volume in 2023 will only be about 9.1 billion yuan. The unexpected rejection of the proposal also quickly attracted the attention of the Shanghai Stock Exchange. On May 13, the Shanghai Stock Exchange issued a regulatory work letter to Baotou Iron and Steel Co., Ltd., clarifying the regulatory requirements for the company's related party transactions.

For a long time, the market has been discussing the rare earth related transactions of the two listed companies. Previously, Baotou Iron and Steel Co., Ltd. was accused of selling rare earths to Northern Rare Earth as a "cabbage price", which was unfair. Until 2022, the two sides passed the "Proposal on the Pricing Mechanism of Daily Related Party Transactions of Rare Earth Concentrate and the Estimated Transaction in 2023", agreeing that from April 1, 2023, the price of rare earth concentrate will be calculated and adjusted according to the pricing formula on a quarterly basis under the condition that the pricing calculation formula remains unchanged.

However, there are still industry insiders speculating that the rejection of the prediction plan of the related party transaction may be related to the sale of rare earth concentrate to Northern Rare Earth, which may be related to the selling price of rare earth concentrate in the related party transaction.

In this regard, the staff of Northern Rare Earth told reporters that we have passed the relevant content of rare earth related transactions of this proposal. Baotou Steel Co., Ltd. told reporters that the proposal was rejected, and we are also looking for the reason. However, the rejection of this proposal should have nothing to do with the related transactions of rare earths mentioned in the past, and there may be a situation where shareholders fail to understand the policy adjustment. We are communicating with our shareholders, and they are now able to understand the policy. We will continue to work on this work after obtaining the understanding of the relevant shareholders, and the details of this work are still being exchanged and revised.

In recent years, the rare earth market has weakened, the price index has continued to fall, and the rare earth trading prices of the two listed companies have also shown a downward trend. According to the announcement of Baotou Iron and Steel Co., Ltd., the transaction price of rare earth concentrate in the first quarter of 2023 will be as high as 35,313 yuan/ton (excluding tax), and by the second quarter of 2024, the related transaction price of rare earth concentrate will be adjusted to 16,792 yuan/ton (excluding tax).

Baotou Steel Co., Ltd. told reporters that the current trading price of rare earth concentrate has a pricing formula, and it is constantly adjusted according to market conditions. This transaction model has been recognized by the regulator and downstream companies, and now the two listed companies are conducting a fair deal, and there is no balance between the benefits of the group and both parties. At present, some people are still using the inertial thinking of the past to look at the rare earth concentrate transactions of the two listed companies.

In terms of trading volume, Baotou Iron and Steel Co., Ltd. told reporters that the amount of rare earth related transactions in the proposal is only a predicted value, and the supply and demand of Baotou Iron and Steel Co., Ltd. and Northern Rare Earth can finally be agreed.

Previously, some people in the industry believed that the restructuring and merger of the two listed companies may be the way out in the future. On May 23, Liu Zhigeng, a well-known financial and tax audit expert and senior certified public accountant, pointed out to the reporter of China Times that related party transactions should follow the basic principles of openness and fairness, honesty and credibility, reasonable and voluntary, fairness and fairness, and equivalent compensation, and determine the transaction price according to the fair market price at the time of the actual transaction. At the same time, listed companies should disclose relevant information in accordance with regulations and accept the supervision of the market and investors.

Zhou Di, an expert from the National Science and Technology Expert Database of the Ministry of Science and Technology, pointed out to the China Times reporter that at the level of the group company, it is necessary to strengthen the coordination and management of brother companies, establish a sound internal communication mechanism and decision-making procedures, and avoid conflicts of interest. The group company should also actively promote cooperation and synergy between brother companies, and achieve a win-win situation through resource sharing and complementary advantages.

Baotou Steel Group was accused of unilaterally changing the price of steel slag

In addition to the rare earth concentrate related transactions of Baotou Iron and Steel Co., Ltd. and Northern Rare Earth, which have attracted much attention, there is also a large controversy in the related transactions of Baotou Iron and Steel Energy-saving steel slag in which both listed companies hold shares.

In 2022, AVIC TEDA, which is mainly engaged in flue gas treatment business in the steel and coking industries, participated in the mixed reform of Baotou Steel Energy Conservation, and obtained 34.00% of the equity of Baotou Steel Energy Conservation from Northern Rare Earth through capital increase and equity transfer, with a total transaction amount of 468 million yuan. After the mixed reform, Baotou Steel Energy Conservation has formed an equity structure with 41% of the shares held by Northern Rare Earth, 34% by AVIC TEDA, 20% by Minmetals Jintong and 5% by Baotou Iron and Steel Corporation.

Thanks to the investment in Baotou Steel's energy saving, AVIC TEDA will reap a lot in 2023. According to the annual report data, the total investment income of AVIC TEDA in 2023 will reach 87.2619 million yuan, a year-on-year increase of 95.46%.

However, the good times did not last long, and AVIC TEDA's investment in Baotou Steel Energy Conservation revenue declined sharply. On April 29, the first quarter report of 2024 released by AVIC TEDA showed that in the first quarter of 2024, due to the significant decrease in the net profit of Baotou Steel Energy Conservation, in the first quarter of 2024, AVIC TEDA's investment income turned from profit to loss, with a loss of 899,264.35 yuan, a year-on-year decrease of 105.05%.

The sharp decline in the net profit of Baotou Steel's energy conservation is a major adjustment in the situation of related party transactions within its group. AVIC TEDA explained that the long-term settlement policy of Metallurgical Slag Company, a wholly-owned subsidiary of Baotou Steel Energy Conservation, is to obtain steel slag from Baotou Iron and Steel Group's subsidiaries free of charge and sell them back to Baotou Group's subsidiaries at a discounted price. At the end of April 2024, Baotou Steel Energy Conservation received an internal document from Baotou Iron and Steel Group, proposing that the subsidiaries of Baotou Steel Group no longer provide steel slag to metallurgical slag companies free of charge, and give guidance on the unit price of steel slag settlement, which will be retroactively implemented from January 1, 2024. The steel slag charge has a significant impact on the energy-saving operation data of metallurgical slag company and Baotou Steel, resulting in a sharp decline in the company's investment income.

Although, based on the principle of prudence, AVIC TEDA passively reduced the investment income part of the company's report in the first quarter of 2024, AVIC TEDA has great objections to the change of steel slag from free to paid. AVIC TEDA publicly stated that the content of the agreement signed when participating in the mixed reform stated that all parties guaranteed that after the signing of this agreement, the metallurgical slag and hazardous waste business originally undertaken by Baotou Steel Energy Conservation should be continued, and the recycling, development and utilization should be continued, and Baotou Steel and its subsidiaries should continue to provide steel slag to Baotou Steel Energy Conservation in accordance with the current effective policy. The cessation of the free supply of steel slag violates the above clause. Moreover, the matter was unilaterally raised by Baotou Iron and Steel Group, and was not reviewed and agreed by Baotou Iron and Steel Energy Conservation and other strategic investors.

For this "dumb loss", AVIC TEDA's investors are quite unhappy. Some investors publicly stated that they would be held accountable for the investment losses of AVIC TEDA caused by the steel slag price adjustment. Liu Zhigeng believes that related party transactions within the group should be handled by the group company in accordance with the basic principles of reasonableness, legality and compliance, openness and fairness, and good faith. For the sake of the overall interests of the group, some violations of laws and regulations cannot be made.

In order to further understand the situation, from May 22 to May 23, the reporter tried to contact Baotou Steel Group, but the phone calls were made many times, but they could not be connected, and the emails sent according to the mailbox monitored by Tianyancha were also returned. At the same time, the reporter tried to call Baotou Steel Energy Conservation, but after calling the company phone number of Tianyancha Monitoring, the other party said that the call was wrong. The staff of Northern Rare Earth told reporters that although Baotou Steel Energy Conservation is a holding subsidiary of Northern Rare Earth, he is not very clear about the group's unilateral steel slag price adjustment.

On May 22, AVIC TEDA told reporters that it is currently negotiating to solve the problem of steel slag price adjustment, waiting for the convening of the shareholders' meeting of all parties. As for whether it will be resolved by other means such as litigation in the future, it is difficult to say at present, and it is necessary to see further circumstances to determine.

Under the current market conditions, more steel companies have continued to lose money, but Baotou Steel Group still maintains the growth of net profit. According to public information, in 2023, Baotou Steel Group is expected to achieve operating income of 115 billion yuan for the whole year, which is basically the same as that of the same period last year; The total profit was 5.3 billion yuan, a year-on-year increase of 10%.

AVIC TEDA told reporters that it is inconvenient for us to analyze the reasons for the unilateral steel slag price adjustment action of Baotou Steel Group. Baotou Steel is a very large and powerful group, we are a small enterprise, in the mixed reform of Baotou Steel Energy Conservation, it is only a role of two shareholders, and did not participate in the development of Baotou Steel Energy Conservation decision-making. AVIC TEDA has made a large investment in Baotou Steel Energy Conservation, and hopes that the performance of Baotou Steel Energy Conservation will be better and better in the future.

Editor-in-charge: Zhang Bei Editor-in-chief: Zhang Yuning

View original image 40K

•