China Angang buys 1.7 bln yuan Panzhihua shrs-paper

SHANGHAI, Aug 15 (Reuters) - China's Anshan Iron and Steel Group (Angang) has paid about 1.7 billion yuan ($248 million) for a 5.1 percent stake in each of the Panzhihua steel group's listed firms, bolstering Panzhihua's consolidation plan, the official Shanghai Securities News reported on Friday.

The three listed companies of the Panzhihua steel group, one of western China's top steel makers, had said earlier this month they would not alter a previously announced plan to merge the group's operations into a single listed company, after rumours casting doubts on the plan sent their shares plunging.

Shares in the three companies -- PZH Steel (000629.SZ), Chongqing Titanium 000515.SZ and Sichuan Changcheng Special Steel 000569.SZ -- have plunged well below the prices at which the firms plan to conduct share placements and share swaps in a 7.19 billion yuan deal announced in May.

Under the plan, Angang, China's fifth-largest steelmaker, 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 above the firms' current market prices.

The Shanghai Securities News cited market sources as saying that the market had become pessimistic about the prospects for the consolidation plan.

The sources added, however, that Angang had gone so far as to mobilise a large sum of cash for share purchases sizeable enough to require public disclosure, which could cause a sharp reversal of the market's expections.

Industry sources have said that Panzhihua was also approached by other major Chinese steel makers hoping to acquire the group, drawn by its rich iron ore resources and favourable location, but the listed group companies said earlier this month that the group had no plans to adjust its consolidation plans.

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=6.862 Yuan) (Reporting by Edmund Klamann, editing by Tom Miles)