How can the steel industry break the "curse" of financial difficulties?

At the beginning of the new year, the "Opinions on Resolving Excess Capacity in the Iron and Steel Industry to Achieve Poverty Alleviation and Development" and "Several Opinions on Financial Support for Stable Industrial Growth and Structural Enhancement" were issued one after another, proposing to provide credit support to promising enterprises, encourage enterprises to innovate financial tools, and reduce financing costs. This is undoubtedly a major "benefit" for steel companies with tight funds.

Since 2014, under the background of the country's strict control of credit in overcapacity industries, the situation of tight funds and the risk of capital chain rupture have risen rapidly to become the "new normal" of the steel industry. As of the end of December 2015, the short-term borrowing balance of banks of key steel enterprises was 962.287 billion yuan, down 2.01% year-on-year; The balance of short-term borrowings and long-term borrowings was 1,328.512 billion yuan, down 0.54% year-on-year. During the same period, the asset-liability ratio of key steel enterprises exceeded 70% for the first time. Although China's monetary policy continued to loosen in 2015, the financing funds of the steel industry are flowing out, and the problem of tight funds continues to intensify.

From the perspective of production and operation of enterprises, at present, there are three main reasons for tight cash flow:

First, the economic benefits of the steel industry have fallen sharply, the loss surface has risen sharply, and the "blood loss" of enterprises is serious. According to the statistics of the China Iron and Steel Association, in 2015, the total profit of the member enterprises of the steel association was 64.534 billion yuan, and the loss was 50.5%. Under the condition of loss, steel enterprises lack their own capital accumulation ability, it is difficult to effectively supplement the funds required for production and operation, and poor profitability is the root cause of financial difficulties.

Second, accounts receivable have increased significantly, which may become a bad debt loss for enterprises in the future. In 2015, the net accounts receivable of key steel enterprises was 130.281 billion yuan, an increase of 5.38% year-on-year. In the past two years, in order to compete for market share, steel companies have not hesitated to reduce prices or sell on credit, and it is difficult to collect payments, resulting in an increase in accounts receivable. At present, the entire manufacturing industry is facing a financial crunch, and these receivables are likely to be uncollectible in the future, eventually becoming bad debt losses for enterprises.

Third, enterprise financing is difficult and expensive, and innovative financial tools have not played their due role. In 2015, the inventory occupied funds of key steel enterprises decreased by 9.61% year-on-year, management expenses decreased by 3.37% year-on-year, sales expenses decreased by 12.98% year-on-year, and financial expenses increased by 0.41% year-on-year. Excluding the impact of foreign exchange losses, bank borrowings decreased year-on-year and financial expenses increased, which also reflected the reality that financing is difficult and expensive for enterprises.

It is true that in the face of the tight external environment, in the past two years, steel companies have taken the initiative to adapt, have the courage to try, and have done a lot of work in capital management. For example, Baosteel, Wuhan Iron and Steel, Ma Steel, TISCO, etc. have established asset management companies to centrally manage the accounts of all their subsidiaries, centralize revenue and expenditure, and reduce financial costs; HBIS, Bengang, Shagang, Xinyu Steel, etc. make full use of overseas low-cost funds through cooperation with foreign enterprises or financing by overseas subsidiaries... However, on the whole, steel companies still have not been able to break the "tight curse" of financial difficulties, and the efficiency of capital operation has not been fully utilized. At present, the tight capital situation of the steel industry is still difficult to change, there is no expectation of when the industry will pick up, and the accumulation capacity of enterprises' own funds is still lacking. In this period, to ensure the security of the capital chain, steel companies need more help, both internal and external repair.

First of all, relevant government departments should "pull" promising steel companies to help them reduce institutional transaction costs and strive for financial support. At present, while steel companies are suffering serious losses, they are also facing many problems that require a lot of capital investment, such as eliminating backward production capacity, accelerating industrial upgrading, and improving environmental protection, and it is difficult for enterprises to tide over the difficulties alone. For promising steel enterprises, government departments at all levels must find ways to "pull" and introduce some support policies in terms of personnel diversion and resettlement, transformation and production, merger and reorganization, relocation and transformation, environmental protection upgrading, technological innovation, etc., to assist enterprises to strive for tax and fee reduction concessions or direct financing, reduce institutional transaction costs, and help them get out of difficulties and achieve a virtuous circle.

Second, banks and other financial institutions should treat the financing of steel enterprises differently, maintain and control, and provide necessary credit support to promising enterprises. The "Opinions on Resolving Excess Capacity in the Iron and Steel Industry and Achieving Poverty Alleviation and Development" and "Several Opinions on Financial Support for Stable Industrial Growth and Structural Enhancement" both clarify the principle of differential treatment of steel enterprises, and have clear plans. Accurately distinguishing between "good companies" and "bad companies" has become a prerequisite for whether credit support can eventually "land". This requires a credible third-party assessment agency to monitor and accurately classify enterprises in real time, and build a "bridge" between enterprises and banks for communication and certification.

Secondly, while strengthening capital management, enterprises should make good use of innovative financial tools to broaden financing channels, do a good job in capital operation, and accelerate the process of asset capitalization and capital securitization. For example, strengthen inventory management, reasonably control the scale of accounts receivable, and accelerate the efficiency of capital turnover; Alleviate capital difficulties and control capital costs through overseas financing and cross-border capital operation platforms; Explore and promote the integration of industry and finance, and explore the pilot project of extending the industrial chain financial services of enterprise group financial companies; Raise funds through M&A loans, issuance of preferred shares and convertible bonds, etc., carry out mergers and acquisitions, transformation and upgrading, international production capacity cooperation, expand direct financing channels such as equity and bonds, and vigorously develop asset securitization business such as accounts receivable financing; Try to issue standardized debt products, actively develop innovative financial instruments such as green bonds, high-yield bonds, and green asset securitization, and promote the implementation of green credit, etc.

Finally, enterprises should practice "internal strength", improve profitability through measures such as variety structure adjustment, benchmarking and potential mining, optimizing procurement, and strengthening sales, so that a virtuous circle is formed between capital flow and production and operation. Restoring its own capital accumulation ability by improving profitability is the fundamental way to solve the financial problems of steel companies.

It is believed that steel enterprises in the deep tide of change will always tighten the string of reform and innovation in terms of funds, and inject the source of living water into transformation, upgrading and sustainable development.