Vietnamese steel maker Hoa Sen Group has confirmed its intention to take over a mammoth steel project in the central province of Quang Ngai after the original Taiwanese investor withdrew from it nearly ten years ago, local media reported.
According to the document sent to Hoa Sen last week, the group will sign a cooperation agreement with the Quang Ngai Province People’s Committee, including investment in the US$3 billion steel project in Dung Quat Economic Zone, news website Dien Dan Doanh Nghiep (Vietnam Business Forum) said.
The intention of Hoa Sen is considered a positive sign for the revival of the huge project that has remained idle for almost ten years, according to Dien Dan Doanh Nghiep.
Originally initiated in 2006, when Taiwanese Tycoons Co. was licensed to develop a US$1.7 billion project, it had a 90 percent stake then sold to another Taiwanese investor, E-United.
E-United renamed the project Guang Lian and raised its investment to $3 billion.
However, when the global economic downturn hit in 2007-08, the financial capacity of the investor shrank, and the project was never implemented.
In 2012, Japanese firm JFE Steel unexpectedly announced it would acquire a controlling stake in Guang Lian and increase the project’s designed annual production capacity from five million tons to seven million tons of steel, requiring an additional capital investment of $1.5 billion.
But late last year, JFE Steel quit the project and redirected $225 million from the fund set aside for the project to acquire a five percent holding in the Formosa Ha Tinh Steel project in the north-central province of Ha Tinh.
With a massive steel project left behind by foreign investors, Hoa Sen Group has to come up with a specific plan on how to begin again from scratch, Hai Quan (Vietnam Customs) newspaper reported.
Quang Ngai officials have advised the firm to invest in a plant with an annual capacity of 3-5 million tons of steel.
Furthermore, Hoa Sen has yet to decide on whether to seek a new investment license from the provincial authorities, or to receive the project directly from E-United, after they dissolve their Vietnamese subsidiary, Hai Quan said.
If they take over the project from E-United without changing its scope, the Vietnamese group will have the advantage of a 10 percent reduction in corporate tax, as per the investment license granted in 2006, when the project was included on a priority list.
In addition, Hoa Sen will only have to spend money on clearing 129 hectares of land, as E-United has already spent tens of millions of U.S. dollars on clearing 375 hectares out of the 504 hectares allocated for the project.
If Hoa Sen wants the provincial authorities to revoke the investment license and grant it a new one, these advantages will disappear, Dau Tu (Investment) newspaper said.
While Hoa Sen is one of the largest steel groups in the country, with five subsidiaries, two manufacturing plants, and exports to 52 countries, a question still remains over whether the local outfit is capable of bringing the massive project into life.
Moreover, a bigger challenge facing the entire industry is a surplus supply of steel, triggered by capacity excess in China.
China’s mills – which produce about half of worldwide output – are battling against oversupply and sinking prices as local consumption shrinks for the first time in a generation amid a property-led slowdown, according to Bloomberg.
Shanghai Baosteel Group Corp. forecast last week that China’s steel production may eventually shrink to 20 percent of capacity, matching the experience seen in the U.S. and elsewhere, Bloomberg reported.
In June, Hoa Sen started construction of a VND5 trillion ($225 million) cold rolling mill with a capacity of one million tons in Nghe An.
As reported by Hoa Sen, with 20 years of experience in the industry, the group's net sales from October 2014 to June 2015 reached VND13.52 trillion ($608.4 million) with a profit after tax of VND484 billion ($21.78 million).