Jiuquan Iron in foreign alliance talks
Eric Ng in Beijing
Mainland steelmaker eyes strategic investor as it plans to inject all its assets into Shanghai-listed subsidiary
Jiuquan Iron & Steel Group is in talks with a foreign steelmaker on co-operation that may make it a strategic shareholder of the mainland firm before Jiuquan's planned asset restructuring.
Jiuquan, the largest steel group in the mainland's northwest, also planned to inject all its assets into Shanghai-listed unit Gansu Jiu Steel Group Hongxing Iron & Steel by 2010, group chairman Ma Honglie said on the sidelines of the National People's Congress.
'We are discussing with an investor, a foreign one, on some co-operation but I can't disclose its identity,' he said.
'We may introduce it as a strategic investor.'
This comes as the planned 2.09 billion yuan acquisition of a 38.41 per cent stake in a larger rival, Shandong-based Laiwu Iron and Steel, by the world's largest steelmaker Arcelor Mittal was stalled due to regulatory hurdles.
The stake was reportedly sold at a price considered by the National Development and Reform Commission to be too low, based on preliminary findings received by the State-owned Assets Supervision and Administration Commission, which owns the largest state enterprises.
Beijing has become more cautious in granting approval to stake sales by key state-owned industrial enterprises amid public outcry that state assets were sold too cheaply to foreigners.
The central government has made it clear in its steel industry policy that it would not allow foreign companies to have majority stakes in domestic enterprises, although it welcomed foreign companies to join domestic ones to consolidate the country's fragmented industry with more than 800 players.
Jiuquan Iron, the mainland's 16th-largest steelmaker, will follow the footsteps of its bigger domestic rivals in Shanghai, Wuhan and Liaoning province to float all its assets by selling them to their mainland listing vehicles.
The group saw crude steel output grow 17.4 per cent last year to 6.64 million tonnes, according to the China Iron and Steel Association.
Gansu Jiu Steel, 61.91 per cent owned by the group, early last year said it planned to produce 4.46 million tonnes of crude steel for the year.
Mr Ma said Jiuquan Iron planned to expand capacity to about seven million tonnes this year and eight million tonnes next year.
It started building of a 1.5 million-tonne-a-year cold-rolled steel production line last week, according to the China Industry Daily.
Scheduled to be completed in April next year, the line will manufacture products used to make home appliances and vehicles.
Gansu Jiu Steel posted profits of 343.15 million yuan in the first nine months of last year, down 31.4 per cent, due to higher energy and raw material costs and lower product prices.
It has not announced its full-year earnings for last year.