General Steel Holdings, Inc. (NYSE: GSI), announced today that the company has signed several crucial restructuring agreements, which are designed to boost the sales of their steel manufacturing business. Shares of the company surged about 500% in 5 days as investors have reacted to the news.
Over the course of several years, consistently weak performance of the steel business in China has hurt the company’s operations, and as a result General Steel Holdings has suffered heavy losses.
Since the steel market is not expected to recover in 2016, General Steel Holdings had to come up with creative solutions. The Company had agreed to sell its wholly-owned General Steel (China) Co., Ltd. and its entire equity interest in Shaanxi Longmen Iron and Steel Co., Ltd. for $1 million, the buyer is an affiliate of Victory Energy Resource Limited.
After the transaction, General Steel Holdings expects to receive a net working capital injection of $1 million. The company expects to benefit from a large reduction in total liabilities and a reversal of equity deficiency of approximately $1.6 billion. As a result from the transaction, the company expects the transaction will result in eliminating future losses and obligations from steel manufacturing.
Ms. Yunshan Li, Chief Executive Officer of General Steel, said, "The timely divesture of the steel manufacturing business is necessary for General Steel in order to preserve liquid assets that will enable the Company to survive and to focus on the promising cleantech business… We are thankful to Chairman Yu with his generous offer to acquire our steel manufacturing business which will alleviate the Company from incurring further losses that would potentially consume all of our remaining working capital. Following the transaction, we expect our balance sheet will be much stronger due to a lower debt burden and higher equity. We also expect to be able to liquidate the land assets in Maoming that could potentially provide as much as $30-40 million cash gain."