Citic Pacific in talks to buy steelmaker
Group hopes to acquire 70pc stake in Shijiazhuang Iron & Steel for $1b after business boosted its profits
Citic Pacific is seeking further growth in lucrative steel manufacturing by acquiring China's largest producer of high-quality steel after the business helped drive the group's interim profit up 60.47 per cent to $2.77 billion.
Managing director Henry Fan Hung-ling told the South China Morning Post yesterday that the conglomerate was in talks to buy a 60 per cent to 70 per cent stake in state-owned Shijiazhuang Iron & Steel in Hebei for about $1 billion.
The deal would not only boost by 50 per cent Citic's total capacity in special steel used for cars and electricity generators to six million tonnes a year but also extend its reach in northern China.
'It will complement our Jiangyin Xingcheng and Xin Yegang plants,' Mr Fan said.
A separate listing of the steel division was also on the cards but it would not happen for one or two years, he added.
'Our priority is to create more synergy in the newly acquired assets by consolidating operations of new and existing plants,' he said.
Defying sky-rocketing iron ore prices and the country's intensified efforts in curbing fixed investment, the group's steel division doubled its profit contribution to $420 million in the six months to June from $207 million a year earlier.
'Special steel is more resilient to the industry downturn because our products are mainly bearing steel and steel tubes for automobiles and power generation units and their demand has been strong,' Mr Fan said.
Armed with $12.37 billion in loan facilities, Citic earmarked between $5 billion and $6 billion for adding steel and property assets this year, he said. The steel and property divisions were the drivers behind the group's interim profit growth, with the underlying profit from property sales in China and Hong Kong surging to $821 million from $244 million previously.
Citic's interim profit included a one-off gain of $700 million from the revaluation of investment properties in accordance with new accounting rules. Stripping out this gain left an underlying profit increase of 19.96 per cent.
Earnings per share were 59.49 per cent higher at $1.26. The interim dividend remained at 30 cents per share.
Mr Fan said the profit outlook for the group's aviation units, Cathay Pacific Airways and Hong Kong Dragon Airlines, was uncertain because of high oil prices. Increased fuel costs eroded the profit contribution of both airlines by 7.07 per cent to $499 million in the first half.
High coal costs continued to affect Citic's power plants on the mainland cutting their profit contribution by 30.28 per cent to $145 million.
However, Citic deputy managing director Peter Lee said a year-on-year increase from 20 per cent to 50 per cent was recorded in the first half depending on individual power plants scattered around Shandong, Jiangsu, Hebei and Inner Mongolia.
He expected improved performance at the power plants in the second half after tariffs were raised in May and coal prices stabilised.
