Rights issue, asset purchase off until flotation of state-held shares is completed
Angang New Steel is confident it can still complete an 18 billion yuan asset acquisition from its parent firm by the end of the year, despite uncertainties over its ability to issue new shares to fund the purchase.
The company, which has both mainland-listed A shares and Hong Kong-listed H shares in issue, was forced to postpone its plan to partly fund the purchase through a rights issue of A and H shares, executive director Fu Jihui said yesterday.
All equity-related financing activities by mainland companies that trade A shares have been halted pending a government-ordered reform of the firms' state-held shares. Such shares are at present not traded on the stock market but the government recently told 46 companies to prepare for the flotation of their state-held shares.
To compensate existing shareholders for the possible loss of value once the state shares are freely floated, companies have been offering bonus shares.
'We must sort out the state shares flotation issue before we can proceed with our asset restructuring with our parent firm, but the timing all depends on the state shares flotation rules, to be announced by the government,' Mr Fu said.
He expected the rules to be announced later this month.
Angang, which will have the capacity to produce about 5.6 million tonnes of steel products by the end of this year, announced in December last year that it would buy essentially all of its parent firm's production assets.
It is part of the government's plan to consolidate the mainland's steel industry by ensuring that the largest few players become wholly listed on the stock markets.
The move follows similar acquisitions by Baoshan Iron & Steel and Wuhan Iron & Steel of their parent firms' assets to form fully integrated, listed steel giants.
After these restructurings, Baoshan will be the nation's largest steel maker with an annual production capacity of about 20 million tonnes, followed by Angang's 16 million tonnes and Wuhan's 13 million tonnes.
By having the companies' entire assets listed on the stock market, the steel giants will have greater flexibility in funding the takeover of smaller rivals by issuing shares.
The central government hopes to see China's top 10 steel producers account for 50 per cent of total industry output by 2010 and 70 per cent by 2020, compared with about 35 per cent today.
Meanwhile, Mr Fu said Angang's steel price fell 10 per cent in the first half from the start of the year.
But he added that the company's overall profit margin was maintained at 15 per cent as raw materials costs also fell by a similar magnitude.
Angang's parent firm, Anshan Iron & Steel Group, has established a new company to merge with Benxi Iron & Steel Group. It will initially be just an operational integration. No timetable has yet been set for an equity merger.
Mr Fu said that the merged company would have a total steel production capacity of 26 million tonnes by the end of 2007.