April 5, 2016 / 11:40 AM / 3 years ago

UPDATE 1-China's Hebei bids 46 mln euros for Serbian steel plant

(Adds CEO quote, details)

By Ivana Sekularac

BELGRADE, April 5 (Reuters) - China’s Hebei Iron & Steel Group bid 46 million euros ($52.2 million) for a loss-making Serbian steel mill and pledged to invest $300 million in expanding production, Serbia’s Economy Ministry said on Tuesday.

Hebei Iron & Steel Group submitted the only valid bid for the state-run Zelezara Smederevo steel plant, which posted a net loss of $113 million last year, and the Serbian government said the bid met all its conditions.

Hebei will not cut any of the plant’s 5,050 staff, the ministry said. It plans to raise production, which was 875,000 tonnes last year, to a maximum of 2.1 million tonnes a year, the Economy Ministry said, without say how long this would take.

The potential deal could boost Prime Minister Aleksandar Vucic who is seeking re-election on April 24. The deal would be the first major privatisation since he took office in 2014, allowing him to fulfil a central economic reform pledge.

Europe’s steel industry is suffering from over-capacity, which European steelmakers blame partly on a glut of cheap Chinese steel exports. Britain is battling to save its steel industry after India’s Tata Steel put its British operations up for sale.

The contract with the Chinese company will be signed after the state commission against money laundering gives the green light, the Economy Ministry said.

The Chinese company pledged to invest in expanding the production line into galvanisation and to improve the plant’s environmental performance, the ministry said.

“They (Hebei Iron & Steel) plan to offer employment to all those who are currently working in the plant (5,050 people),” the ministry said.

Any deal would need the approval of the European Commission, as Serbia is seeking to wrap up membership talks with the EU in 2019.

The Serbian firm’s chief executive Bojan Bojkovic told Reuters that the $300 million promised by Hebei was a “minimum investment over the next two years.”

Hebei province, where Hebei Iron & Steel is based, produces a quarter of China’s steel but its mills are struggling with a huge price-sapping capacity surplus.

The province has repeatedly urged its steel firms to shut capacity at home and replace it with projects overseas.

$1 = 0.8807 euros Reporting by Ivana Sekularac; editing by Adrian Croft

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