General Steel Holdings, Inc. (NYSE: GSI) is a Chinese based company registered in Nevada, United States, and is the only Chinese company in the iron and steel industry that is listed on the NYSE. The General Steel Holdings is undergoing major restructuring of business operations, transitioning from a producer of a variety of steel products, to a company with a more diverse portfolio of businesses, which includes logistics and the Internet-of-Things.
General Steel Holdings has started in the metal production industry, and had seven million metric tons of crude steel production capacity under management, quickly becoming a major player in China's steel industry, which is the world's biggest. Then the industry went into crisis.
The crisis in the Chinese steel industry was caused by several factors. The slowing down of the Chinese economy due the country’s transition from manufacturing to a more diverse partially service economy, a drop in commodity prices, and a massive industrial debt, all have contributed to the crisis. As a result of a consistently weak performance of the steel business in China 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. Recently the Board of Directors approved a strategic restructuring plan, which is designed to accelerate the Company’s transformation in business operations. General Steel 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.
Relying less on steel manufacturing gives General Steel opportunities to develop a more versatile business. The company plans to reconfigure steel manufacturing facilities and assets to facilitate expansion into logistics and Internet-of-Things businesses. Two industries which have high and growing demand.
According to a research report conduct by Deloitte, today’s modern logistics market has become very complicated and includes contract logistics (third-party logistics), ground transportation (logistics provided through highway and railroad systems), express delivery and parcel delivery, freight forwarding, fourth-party logistics and distribution companies.
The report indicates the impressive growth of the logistics market, which increased from $6.62 trillion in 2009 to over $8.5 trillion at the end of 2013, which represents an annual compound growth rate of 6.69%, or 29.58% in total, and China is the leader. China’s logistics market grew to the size of $1.59 trillion to account for 18.6% in the world in 2013, making it the world’s largest logistics market two years in a row.
General Steel Holdings saw an opportunity to enter the new growing market, and has partnered with Tewoo Group, one of the Fortune 500 companies, to build a modern logistic center in Maoming, Guangdong province.
As for the Internet-of-Things (iot), China is just as impressive. China is the leader in deployment of the Internet-of-Things according to a report by GSMA. The market value of China’s iot industry is estimated at $ 80.5 billion in 2015 up from $32.2 in 2010, according to the Ministry of industry and information technology. General Steel Company has decided to expand its business operations into the fast growing internet-of-things industry. After setting up a team and acquiring existing firms in the filed, the Company now is able to design, manufacture, and integrate radio frequency identification (“RFID”) systems. The RFID technology is designed to provide real-time data on supplies, inventory, and goods, and by this increasing its customers’ business and planning processes.
General Steel Holdings is a small company with a roughly 22 million market cap, which has struggled to reach its potential due to the falling demand of the Chinese steel market, but with their new business ventures we will see where the company is headed now.