Three listed firms will be combined to streamline operations Hebei Iron & Steel Group began merging its three listed units yesterday to form the country's second-largest listed steelmaker and improve profitability in the face of a slumping industry. Shenzhen-listed Tangshan Iron & Steel, of which Hebei Steel owns 53.88 per cent, said it would swap shares to merge with its Shanghai-listed sister companies, Handan Iron & Steel and Chengde Xinxin Vanadium and Titanium, in both of which Hebei Steel is also the largest shareholder. Tangshan Steel said the merger could avert internal competition and streamline operations as well as enhance profitability. The combined company's profit last year could be increased 65 per cent to 3.54 billion yuan (HK$4.01 billion), it said. Beijing has been encouraging mergers and acquisitions in the sector to enhance competitiveness and eliminate backward facilities. The mainland steel industry suffered badly last month, with 71 large and medium-sized steel mills posting total losses of 12.77 billion yuan, more than double the figure for October, because of high raw material costs and depressed demand. Tangshan Steel, Handan Steel and Chengde Xinxin are based in Hebei province, home to 20 per cent of the country's steel production capacity. Under the merger plan, which needs approval by minority shareholders and securities watchdogs, one Handan Steel share will be swapped for 0.775 Tangshan Steel share, while one Chengde Xinxin share will be exchanged for 1.089 Tangshan Steel shares. The exchange ratios were based on the average prices of the three listed firms over the past 20 trading days. After the merger, Tangshan Steel will remain as the only listed arm of Hebei Steel, while the other two firms will be delisted. Hebei Steel's shareholding in the expanded Tangshan Steel will be reduced to 46.83 per cent. The combined company was the second-largest listed steelmaker, based on its crude steel output of 20.86 million tonnes last year, just behind Shanghai-listed Baoshan Iron and Steel with 22.6 million tonnes. Hu Hao, an analyst at Central China Securities, said the merged entity would become the country's top listed steelmaker. This would come from the injection of other steel-making assets into the listed company from its parent company, Hebei Steel, which was created by the merger of Hebei government-owned Tangshan Iron & Steel Group and Handan Iron & Steel Group on June 11. Assets that remain in the hands of Hebei Steel include Xuanhua Iron & Steel Group, which has an annual steel output of 6 million tonnes, Wuyang Iron & Steel, with 3 million tonnes, and Tangshan Stainless Steel, with 2.57 million tonnes last year. Shares of the three listed companies dropped yesterday after the merger news. Tangshan Steel and Chengde Xinxin fell their 10 per cent daily limit to 4.10 yuan and 4.95 yuan, respectively. Handan Steel dived 8.8 per cent to 3.43 yuan.