General Steel Skyrockets After Announcing Divestiture Of Steel Business

Shares of

, a China-based producer of steel products,

on Tuesday a series of restructuring agreements including a sale of its steel manufacturing business. Shares of General Steel were trading higher by more than 30 percent at $3.57 by early Tuesday afternoon. General Steel said in a press release that its steel manufacturing business has "repeatedly" suffered "heavy" net losses over the past few years and the current "depressed" market condition is expected to further deplete the company's working capital. As such, the company announced it has entered into an agreement 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. General Steel noted that upon completion, the company expects to receive a net working capital injection of $1 million, and realize a reversal of equity deficiency of approximately $1.6 billion, benefiting from a large reduction in total liabilities. "The timely divestiture 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," commented Ms. Yunshan Li, Chief Executive Officer of General Steel. "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," he added. "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."