Angang revives dual bid for issue of rights shares

Angang Steel, the mainland's third-largest steel producer by output, saw its share price fall as much as 3.18 per cent after it unveiled a second attempt to launch the first dual A and H-share rights issue to raise more than HK$20 billion.

Taking advantage of its soaring stock price, the largest Hong Kong-listed mainland steel producer by market capitalisation said yesterday it would seek shareholders' approval to issue either two or three rights shares for every 10 existing shares held to fund the building of a plant that would raise the company's production capacity by about 30 per cent by the end of next year.

The company's Hong Kong-traded H shares have surged 31 per cent this year and 116.5 per cent in the past year, even as its Shenzhen-listed A shares recorded a more spectacular 70 per cent gain year-to-date and 207.6 per cent rise in the past 12 months.

All shareholders, including parent Anshan Iron & Steel Group, will be eligible to subscribe to the rights shares. Those who choose not to will see their stakes substantially diluted - one of the reasons shareholders tend to frown on such offerings.

The price of the issue will be the lower of the 20-trading-day closing price averages of its A and H shares before the price-setting date, on which an as-yet-unspecified discount may be applied. No timetable has been set for the proposed issue.

The average closing price over the past 20 trading days of its A shares was 13.80 yuan, compared with HK$13.02 for its H shares. Its A shares ended yesterday 1.14 per cent lower at 17.35 yuan while its H shares fell 1.06 per cent to HK$14.94.

Assuming no discount and the price were to be set today, the issue would be sold at HK$13.02 a share, raising HK$15.44 billion from a two-for-10 issue or HK$23.16 billion for a three-for-10 sale.

The proceeds are due to fund the company's 22.6 billion yuan, five million-tonne-a-year steel plant being built in Bayuquan port, Liaoning province.

If it gains shareholder approval, and no other firm jumps ahead, the offering will be the first simultaneous A and H-share rights issue.

Such sales are rare among H-share firms, which tend to use bank financing as their main fund-raising channel, with the placement of bonds and shares being less popular.

In October 2005, the company attempted to raise billions of yuan from an A and H-share rights issue to fund the 19.69 billion yuan acquisition of its parent firm's assets, but the plan was derailed by a state-ordered reform of state-owned shares, which mandated that companies could not offer new domestic shares until they completed the process.

There was also investor concern at the time about an oversupplied steel sector, which was plagued by falling profits.

Analysts say the timing of Angang's renewed rights issue was much better, as steel product prices and industry profits have been rising for a year and the industry outlook remains promising for at least the rest of this year.