Overseas firms show interest in FerroChina

PUBLISHED : Friday, 02 May, 2008, 12:00am
UPDATED : Friday, 02 May, 2008, 12:00am

FerroChina, a Singapore-listed mainland coiled-steel maker, has attracted interest from Australia's BlueScope Steel and Russian firms including Evraz Group over selling an about 20 per cent stake with a current market value of US$167 million.

FerroChina executive director Norman Fong said last month that the company was looking for foreign investors to increase sales and access to raw materials.

The company said last week it had hired Merrill Lynch as a strategic adviser.

FerroChina's shares have this year dropped 22.8 per cent to S$1.42 (HK$8.15). The company's market capitalisation is S$1.13 billion.

'There's been a lot of borrowing of their scrip and shorting the stock so they want to soak up the excess stock by putting in a new strategic investor,' said CIMB-GK analyst Lawrence Lye. 'They feel the stock has been too volatile and shouldn't be that way because they have sound fundamentals.'

FerroChina's plans could change depending on the types of formal bids received.

'The thing to recognise is you don't know what you'll end up with,' said one source. 'Some of the real acquisitive guys may come in with a huge bid and the whole company could get sold.'

Foreign steel companies are eager to gain access to China's rapidly expanding steel sector, where production last year rose 15 per cent to 489.2 million tonnes.

Melbourne-based BlueScope Steel is Australia's largest steelmaker.

Beijing has banned foreign companies from taking majority stakes in state-owned steel mills but its view on investment into the non-state sector has not been formalised. Mainland private steel mills produce a third of the country's total crude steel output, according to China Iron and Steel Association.

'The feeling is that some of these companies are too small to worry about,' said a source, citing discussions he had had with mainland regulators.

Evraz, partly owned by Russian tycoon Roman Abramovich, is awaiting Chinese government approval to buy a 10 per cent stake in Singapore-listed steel trader Delong Holdings. Evraz has the option to raise the stake to 51 per cent which, if exercised, will require it to buy out the remaining shareholders.

When the deal was announced in February, the S$3.95 per share price the company agreed to pay was at a 30 per cent premium to where the shares traded.

ArcelorMittal, the world's largest steelmaker, is also awaiting approval for its acquisition of Hong Kong-listed China Oriental Group, which makes steel strips and billets. Such products are a middle stage in processing steel.

FerroChina sells steel used as window and door frames, scaffolding, highway signage and railings, and agricultural machinery.