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STEEL manufacturing and trading group Delong Holdings is proposing to diversify into the investment business.
In an announcement on Tue evening, the Beijing-based group said that it intends to invest in companies and other entities, and to provide seed and mezzanine capital to private companies with growth potential.
The investment business will not be restricted to any specific business sector, industry or geographical market, as each major investment will be evaluated and assessed by the board on its own merits, it said.
The diversification comes on the back of challenging conditions for Delong's core steel business, due to excess production capacity in the industry after 20 years of accelerated growth.
The investment business will add a new stream of revenue and earnings for the group and allow it to expand its network of contacts and business opportunities, said Delong. It will also place the group in a better position to capitalise on the growth prospects of both local and overseas markets.
As the first step in its new strategy, Delong is planning to acquire a 2 per cent stake in China clothing design firm Qingdao Kutesmart Co Ltd from its founder Zhang Daili for 60 million yuan (S$12.2 million).
Qingdao Kutesmart uses digital platforms and technological processes to customise clothing and apparel, and is aimed at upgrading the traditional tailoring process for bespoke products in the apparel industry.
The consideration of 60 million yuan, to be funded through Delong's internal cash resources, is about 49 times Qingdao Kutesmart's 2015 profit after tax, and 92 times its profit after tax in 2014.
Delong said it aims to leverage Qingdao Kutesmart's strong growth potential, and that the latter has also attracted "substantial capital injections by reputable investors" in the last two years. It plans to be a passive investor, and will not be involved in the management of the group.
It may exit as a shareholder from the firm after the completion of an initial public offering or trade sale, which is expected to take place within two years.