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Economic news
Baoshan'S $16B Purchase Of Parent Assets To Boost Output, Enhance Profits
Baoshan Iron and Steel will spend 17.91 billion yuan (about HK$16.78 billion) to buy steel complex assets from its parent, steel giant Shanghai Baosteel Group.
Analysts said the purchase of the assets, which had been expected, would boost the bottom line and the long-term development of the listed Baosteel unit.
The purchase, to be paid in annual instalments from this year to 2005, targeted the bulk of Baosteel's third-phase complex which mainly makes value-added cold-rolled steel products, Baosteel said.
The third-phase has assets of about 25 billion yuan, said the statement published in the Shanghai Securities News.
A spokesman for Shanghai-listed Baosteel said the company would mainly pay for the assets out of profits.
"We will mainly use cash. We have calculated payment will not affect our earnings per share this year, although we are not in a hurry to forecast the remaining five years," he said.
To fund its expansion, Baosteel's listing vehicle floated 1.877 billion domestic A shares, off limits to foreign investors, late last year to raise 7.70 billion yuan - China's biggest A-share issue.
But the spokesman said the A-share issue proceeds would not be used in the planned third-phase purchase.
Most of those funds had already been invested in technical upgrades of facilities for producing steel plates for cars and other projects, he said.
The acquisition would boost Baosteel's output by a third, making it the first Chinese steel-maker with an annual capacity of 10 million tonnes. It would also allow production of more value-added products such as steel plates, the statement said.
The plans still need the approval of shareholders at a meeting scheduled for August 17.
Analysts said the assets were likely to yield net profit of about 1.5 billion yuan this year, although that would depend on the actual date of purchase from the group.
Without the purchase, Baosteel was expected to record net earnings of about three billion yuan for the year.
"This is a key expansion for Baoshan Iron and Steel that will greatly enhance its profits and ensure its long-term development," said Jiang Jian, a steel analyst at China Southern Securities.
"If Baoshan Iron and Steel is allowed to buy the remaining assets of the third phase, it would mean all of Baosteel Group's high-quality assets will be concentrated in the listed company."
The listed company's spokesman said it might buy the remaining high-quality assets. Baosteel Group's stake of 85 per cent in the listed company would remain unchanged, he said.
Analysts said they were surprised by the company's plans to use its own money to buy the assets, having expected the funding to come from a planned overseas listing.
Baosteel had planned to issue shares in Hong Kong and New York in the middle of last year, but weak market conditions forced a delay and it shifted to the domestic listing first.
"Our overseas listing plans are still alive, but proceeds will target other expansion projects," the spokesman said. No timetable for the global listing had been set because of weak market conditions and new expansion plans would depend on that listing.
The company's A shares were suspended from trading yesterday morning.
(South China Mornnig Post)
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