UPDATE 1-Panzhihua Steel says to stick to merger plan
(Adds background, comments, media reports on Baosteel interest)
SHANGHAI, Aug 5 (Reuters) - The Panzhihua steel group, one of western China's top steel makers, will not alter a previously announced merger plan, the group's three listed units said on Tuesday, after rumours that cast doubts on the plan sent their shares plunging.
Panzhihua, which plans to consolidate its operations in a single listed company, has been approached by major Chinese steel makers hoping to acquire the group, drawn by its rich iron ore resources and favourable location, industry sources have said.
"Panzhihua has no plans to adjust its major restructuring scheme," PZH Steel 000629.SZ, Chongqing Titanium 000515.SZ and Sichuan Changcheng Special Steel 000569.SZ said in brief statements to the Shenzhen Stock Exchange.
Shares in the three companies were suspended on Monday after they plunged well below the prices at which the firms plan to conduct share placements and share swaps in a 7.19 billion yuan ($1.1 billion) deal that was announced in May.
Their Shenzhen-listed shares rose by 1 to 1.5 percent after resuming trade on Tuesday, compared with a 0.33 percent drop in China's benchmark share index .SSEC.
The official China Securities Journal said on Monday that the shares were hit by speculation that weakness in the overall stock market might derail the merger or that the deal might not obtain final approval from the securities regulator.
The companies said on Tuesday that market speculation about possible changes to the merger plan was incorrect, although they did not discuss the speculation in detail.
Under the plan, fifth-largest Chinese steelmaker Anshan Iron and Steel Group (Angang) has the right to buy shares of the three listed units from shareholders who want to sell instead of swapping into the merged firm, at prices that are above the firms' current market prices.
Domestic media reports cited market rumours that Baosteel Group, China's largest steel mill and the parent of Baoshan Iron and Steel (600019.SS), would replace Angang's role in the merger scheme with the aim of eventually acquiring Panzhihua.
Officials from Baosteel and the Panzhihua group declined to comment on the reports.
"It is a complicated case. Angang has a better relationship with Panzhihua than Baosteel does, but Baosteel's influence in the central government is greater," said a Beijing-based industry analyst who declined to be identified.
"Considering that Panzhihua's merger has not yet obtained all the approvals from government departments, any changes are possible."
The Panzhihua group plans to merge all its assets into PZH Steel in a deal that would more than double PZH Steel's total assets and create a listed company with 37.5 billion yuan in annual sales and 1.69 billion yuan of net profit.
Beijing is encouraging mergers and acquisitions in China's steel industry, the world's largest, to create globally competitive giants, but analysts have said it faces obstacles from local governments keen to protect sources of employment and tax revenue. ($1 = 6.85 yuan) (Reporting by Samuel Shen and Alfred Cang; Editing by Edmund Klamann)
