Foreign investors downgrade China Steel

By Ruby Ying, The China Post

The high-profile appointment of China Steel Corporation’s new chairman has dragged down the company’s share price in the past week, causing several foreign securities firms such as Merrill Lynch, Baring, and UBS Warburg to downgrade their rating of China Steel stock. As foreign institutional investors are skeptical of the company’s profitability after the incoming chairman Kuo Yen-tu takes office, the price of China Steel stock has continued plummeting under heavy selling, analysts said. The company’s stock price yesterday shed NT$0.7, or 3.8 percent, to close at NT$18.20. On Wednesday, the price suffered the biggest single-day slide since last August, dropping by 4 percent. According to UBS Warburg, Kuo’s ineffective financial performance during his term as the vice chairman of China Steel’s rival steel maker Yieh-loong has led investors to doubt his management ability and become uncertain about China Steel’s future performance. Adding to investors’ pessimism, international steel prices have fallen on oversupply since this year, a trend expected to pull down China Steel’s profitability. The company’s after-tax profit for this year is estimated to be NT$1.2 per share, compared with NT$2.15 per share last year. In the short-term, China Steel will see heavy selling of its stock in the local market. Even if the steel industry picks up in the future, securities firms won’t necessarily upgrade the rating of China Steel stock because they will be watching the performance of the new management team, said analysts. Baring Asset Management pointed out that the replacement of incumbent chairman Wang Chong-yu, who is widely respected as a professional manager, would damage the company. Therefore, Baring has suggested its clients switch their China Steel shares for POSCO in Korea and Angang New Steel in Hong Kong. Local securities firms also viewed the political appointment as detrimental to the company’s development.

Despite China Steel’s solid assets and financial resources, factional struggles, added to doubts about the capability and integrity of the incoming chairman, will cast a shadow over the company’s future development, noted Gpmoney, the investment trust arm of the Chinatrust Group.