SHANGHAI, China - Shanghai Baosteel Group Corp., China's largest steelmaker,
plans to pay 3 billion yuan (US$128.5 million) for a controlling stake in
smaller regional rival Xinjiang Bayi Iron, the companies said Wednesday.
state-owned parent company of Baoshan Iron & Steel Co., has pledged to hold
onto the newly acquired 69.61 percent stake in Xinjiang Bayi and may increase
it, Bayi said in a statement to the Shanghai Stock Exchange.
China is the world's biggest producer and consumer of steel, but its industry
is highly fragmented. The government has been encouraging takeovers of small,
backward manufacturers by larger, more competitive steelmakers like Baosteel to
consolidate the sector and make it more internationally competitive.
Xinjiang Bayi produced 2.84 million tons of crude steel last year, compared
to Baosteel's 23 million tons. The acquisition would move Shanghai-based
Baosteel toward its target of boosting capacity to 30 million tons by 2010,
state media reports said.
"The deal facilitates the consolidation in China's steel sector and improves
Chinese steel companies' competitiveness in the international markets," Xinjiang
Bayi said in the statement.
It cited Baosteel's advanced technology as a key draw. Baosteel said it was
attracted by Xinjiang's location in China's remote northwest.
"The unique geographical position of Xinjiang and its market ties with
central Asian countries are a key reason for Baosteel to travel thousands of
miles to cooperate with the company," the state-run newspaper People's Daily
quoted Xu Lejiang, Baosteel's chairman and chief executive officer, as saying.
The two companies earlier formed a strategic alliance.
The deal, signed late Tuesday in the Xinjiang capital of Urumqi, is still
subject to regulatory approval. The local government in Xinjiang retains a 15
percent stake in Bayi.
Baosteel is China's biggest steelmaker by output. It also has a tie-up with
rival Ma'anshan Iron & Steel Co. and is reported to be planning an initial
public offering overseas, possibly in New York, later this year.
The news boosted share prices for the publicly traded units of Baosteel and
Xinjiang Bayi, both of which are traded in Shanghai.
Xinjiang Bayi jumped 10 percent, the daily limit, to 6.17 yuan. Baoshan Iron
& Steel gained 1.9 percent to 9.34 yuan.
Some other medium- and small-sized steel makers, such as Daye Special Steel,
Jinan Iron & Steel and Tangshan Iron & Steel rallied on hopes that they
may also become acquisition targets for industry leaders like Baosteel.