Kai Yuan, Rizhao look to more co-operation

PUBLISHED : Monday, 09 February, 2009, 12:00am
UPDATED : Monday, 09 February, 2009, 12:00am

Fresh from building a HK$5.2 billion all-share stake in mainland steelmaker Rizhao Iron and Steel, Kai Yuan Holdings says it plans further co-operation with the country's second-largest private steelmaker.

On January 15 Hong Kong-listed Kai Yuan, an investment holding company with interests in heat supply and property investment, said it had acquired 30 per cent stakes held by Fame Risen Development in two Rizhao operating arms, as well as another 25 per cent stake in a Rizhao wire-making operation.

The deal was done via the issue of 2 billion shares at a price of HK$2.60 each, which has left Rizhao's controlling shareholder Du Shuanghua and related parties with a stake of about 25 per cent in Kai Yuan, depending on the conversion of convertible notes and options.

Though further asset acquisition was not on the cards, the deal was also just the 'first step' in proposed co-operation between the two firms, Edward Lee, the vice-president of corporate finance for Kai Yuan, said.

The market is speculating that Mr Du plans to use Kai Yuan as Rizhao's overseas listing platform and intends to inject all of the group's steelmaking assets into Kai Yuan to fight a merger between Rizhao Steel and state-owned Shandong Iron and Steel Group, which is favoured by the Shandong government.

Mr Du, ranked second on the 2008 Hurun China Rich List with a personal wealth reported at 35 billion yuan (HK$39.71 billion), together with Zhang Heyi, late last year paid about HK$87.5 million for a 9.95 per cent stake in Kai Yuan.

That stake has now been cemented by the latest deal, which will raise Mr Du and related parties' holding in Kai Yuan to 25.4 per cent, against 19.26 per cent held by Kai Yuan chairman Hu Yishi.

Mr Du has said he would use Kai Yuan as one of his windows in overseas investment and would explore further co-operation with the firm during this economic low tide.

Mr Lee declined to comment on Mr Du's intentions but stressed that for now, Kai Yuan did not plan to increase its stake in the three joint ventures or invite more Rizhao Steel management to the company's board.

Last month, Kai Yuan appointed Xue Jian, a senior manager of Rizhao Steel, as non-executive director and granted him share options.

Mr Lee said Kai Yuan would rely on Rizhao Steel to manage the steel business, which would become its major source of revenue, while Kai Yuan, which had a loss of HK$79.35 million for the year to June, would focus on the heat supply business.

'The acquisition of the steel business would immediately enhance our profitability and boost our assets base without incurring material cash outflow,' he said.

Rizhao Steel suffered a loss in the fourth quarter amid falling prices and demand, China Entrepreneur magazine said, but could still post a full-year profit of not below 3 billion yuan.