Greater China

Aug 24, 2005

China's iron/steel industry to see M&A activity

BEIJING - China's iron and steel industry has entered a new period of development in merger and acquisition [M&A] activity, with the capital market to provide the funds and low-cost platform, and the split-share reform to provide opportunities. This was the consensus at the 2005 Forum on the Development and Reform of China's Iron and Steel Industry held in Beijing recently.

The roadmap for the acquisition drive, as described by Vice-President of the Chinese Iron and Steel Industry Association Luo Bingsheng, will be: Anshan Iron & Steel will merge with Benxi Iron & Steel in northeast China, Shougang (capital) Steel will merge with Tangshan Steel in north China, Baoshan Steel will continue as an agglomeration in central, eastern and southern China, and Wuhan Steel will be the flagship in central and southwest China.

Baoshan Steel has ambitions of bringing its steel output to 50 million tons and edging into the top three in the world by 2010. It will not confine its acquisitions to the home market. Wuhan Steel has signed an intent agreement with Liuzhou Steel in Guangxi, following its merger with ESteel. Now, the company intends to go up the Yangtze River to acquire Chongqing Steel and down the river to acquire Hangzhou Steel. Shougang, after its removal from Beijing for air quality reasons, is negotiating with Tangshan Steel.

The capital market has provided iron and steel giants with enough funds to conduct mergers when desirable. It was discussed at the forum that the 33 listed steel enterprises have raised 87.474 billion yuan (US$10.8 billion) from the A-share market, including 38.4 billion from IPOs, 19.185 billion from additional issues, 7.599 billion from right issues and 11.19 billion from debt-to-equity conversions.

The total market value of iron and steel enterprises has reached 218.88 billion yuan, 7.55% of the A-share market; the tradable market value hit 56.115 billion yuan, 6.47% of the market total. Furthermore, the ongoing split-share reforms will offer opportunities for iron and steel giants to buy less competitive companies at a relatively low price.

The overall situation in China's iron and steel industry features excessive supply. The industry will enter a period of limiting production and maintaining prices, a phase very conducive to large scale mergers and acquisitions.

(Asia Pulse/XIC)

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