SHANGHAI (Reuters) - Baosteel Group, China’s top steel producer, plans to pay $4.2 billion for a controlling stake in a new steel mill, which will merge two existing mills, as China calls for the formation of national steel champions.
Baosteel Group, parent of Baoshan Iron and Steel (600019.SS), will take over Shaoguan Iron and Steel Group and Guangzhou Iron and Steel Group to launch a new company — Guangdong Iron and Steel Group Corp based in Guangzhou, a statement by the listed unit of Shaoguan Steel said late on Monday.
The existing Guangzhou Steel will shut its steelmaking facilities in the southern city of Guangzhou and Shaoguan will shut or upgrade its facilities, the government has said.
Guangzhou Steel is the parent of Guangzhou Steel (600894.SS) and Shaoguan Steel the parent of Shaogang Songshan (000717.SZ). It was not immediately clear whether the two listed units would be delisted after the Baosteel acquisition.
Baosteel will pay 28.688 billion yuan ($4.2 billion) in cash for a 80 percent stake in the newly established company, Shaogang Songshan said in a statement published on the Shenzhen Stock Exchange’s Web site on Monday.
The Guangdong state-owned assets regulator, which owns the assets of Guangzhou Steel and Shaoguan Steel, will inject the assets, valued at a combined 7.172 billion yuan, into the new company and will thus own its reminding 20 percent stake, the statement said.
“Related parties are still consulting on details and will disclose related information in line with progress,” the statement said.
Trading in shares in Baoshan Iron and Steel Co and the two Guangdong-based listed companies was suspended on Monday.
Beijing has been encouraging consolidation in its steel industry to improve the sector’s efficiency and production and to build national champions in the industry that can compete with global giants such as ArcelorMittal ISPA.AS (MT.N).
In addition to the new Guangdong Steel, Baosteel also aims to build a new steel mill with an annual capacity of 10 million tonnes to be headquartered in the port city of Zhanjiang city, also in the Guangdong province, the government has announced.
Earlier this month, Tangshan Steel Group merged with Handan Steel Group, creating Hebei Steel Group. The new company’s output would exceed that of Baosteel Group, the official China Securities Journal reported.
Reporting by Samuel Shen and Alfred Cang; Editing by Erica Billingham