<article><p class="lead">A series of executive and board member changes at German ferrous and non-ferrous metal recycling firm Scholz's parent company Chiho Environmental and the financial problems associated with Chiho's majority shareholder have raised questions about the future of the German firm.</p><p>Loncin, the Chinese majority shareholder of Scholz's Hong Kong-based parent company Chiho Environmental, and 12 of its subsidiaries have appointed a strategic investor for its debt pre-restructuring proceedings, according to a note published on 30 December by China's national enterprise bankruptcy information disclosure platform. Loncin owns 60.95pc of Chiho. </p><p>"Due to the big debt load and without the apparent ability to serve due debt payments, it has become increasingly difficult in the last quarter of 2021 to balance the major shareholder's interests with the fiduciary duties of a professional management towards the company, minority shareholders, financing partners, and other stakeholders," Rafael Suchan, the former chief executive and executive director of Chiho, said on 8 January. "On various occasions it has become a great challenge for us as a professional management team to operate upholding the interests of the company by adhering to proper corporate governance." </p><p>Rafael Suchan was suspended from duty as Chiho's CEO on 6 December 2021 and dismissed from the roles of CEO and executive director of the board on 7 January.</p><p>Apart from the removal of Suchan, Chiho made several changes to its executives and board members in December. Martin Simon resigned from the positions of executive director and chief financial officer on 15 December. And two of the company's three independent non-executive directors resigned on 6 December. Li Linhui and Yao Jietian, both with strong ties with Loncin or its associated companies, were appointed as Chiho executive directors on 13 December. Several senior management executives were heard to have also been dismissed. </p><p>Operations at Scholz have so far been heard to be largely undisrupted by the financial problems of Loncin and the sudden changes in Chiho's management. But market participants naturally started to question the future of Scholz, and whether Chiho reshuffled the board to pave the way to sell Scholz to raise funds for its majority shareholder.</p><p>Scholz is Chiho's most valuable asset. After Chiho sold its shredders in the US southwest to Canada-based American Iron and Metal (AIM), Scholz is probably the only business sector that can raise any significant money for Chiho if sold. </p><p>Scholz, which has a network of over 250 ferrous and non-ferrous scrap recycling facilities in Europe, accounted for 85pc of Chiho's revenue and 90pc of sales quantity in January-June 2021.</p><p>But any sale would not be straightforward. Chiho is listed on the Hong Kong Stock Exchange, which means that minority shareholders may challenge the board reshuffle and any subsequent decisions made by the new board. But in reality, the exchange and its regulator almost never interfere on behalf of minority shareholders with commercial decisions of listed companies. </p><p>The biggest obstacle to selling Scholz is likely to be finding a buyer that the European and German authorities consider suitable. The European Commission and competition regulators in its member states have made mergers and acquisitions (M&amp;A) between large companies more difficult as they now examine takeovers more rigorously and make stronger divestment demands. </p><p>A joint venture between German recycling firms <a href="https://direct.argusmedia.com/newsandanalysis/article/2283462">TSR and Rhein Main Rohstoffe</a> was effectively rejected by the country's Federal Cartel Office in December. And the regulator said on 19 January that it has initiated a further inquiry to "examine whether the Rethmann Group can be obliged to also notify future takeovers of smaller companies" that do not reach specified revenue or market share thresholds. Rethmann is the parent company of Remondis Group, which owns TSR. </p><p>French recycling group Derichebourg <a href="https://direct.argusmedia.com/newsandanalysis/article/2284959">has to commit to sell four recycling plants</a>, including a shredder, plus an option of buying another five collection sites, to satisfy the European Commission's competition concerns over its acquisition of Luxembourg-headquartered Ecore. </p><p>Because of the strong presence of Scholz in Germany and many other European countries, competition regulators may be unwilling to allow Scholz to merge with any large European or German recycling firms without demanding significant divestment commitments. Any divestment demand will lower the value of the deal and delay completion. </p><p>But Scholz will be an attractive M&amp;A target for non-European recycling firms, companies that currently have few operations in the continent, or any European steelmakers looking for upstream expansion opportunities. </p><p class="bylines"><i>By Chi Hin Ling</i></p></article>
