UPDATE 1-Arcelor to pay $309mln for China mill stake-source
Thu Aug 4, 2005
By Fang Yan
SHANGHAI, Aug 4 (Reuters) - Arcelor is set to pay $309 million for a stake in a mid-sized Chinese steel mill, a senior executive with the local firm said, naming a price that implied a 60 percent premium for buying into the largest and fastest-growing steel market.
Luxembourg-based Arcelor, the world's number-two steel maker, had agreed initially to pay 2.5 billion yuan ($309 million) for the stake of up to 38 percent and was eyeing eventual control of Laiwu Steel Corp. Ltd., the executive, from Laiwu's parent, told Reuters.
If completed, the deal would give Arcelor a stronger foothold in the world's largest steel producer and consumer, while seemingly getting around a recently announced steel policy that forbids foreign control of China's largest mills.
The price would represent a roughly 30 percent premium to Laiwu's net asset value and a 60 percent premium to the listed mill's share price -- far surpassing the price that larger rival Mittal paid for its 37 percent slice of another domestic firm.
Mittal's price equalled book value and was 13 percent less than the share price.
"Arcelor will pay some 2.5 billion yuan for a less-than 38.4 percent stake initially," the executive said. "But it wants control eventually."
"We've even worked out an exit plan, under which we could buy back the shares if Arcelor fails to get what it wants in the end," the executive added.
Arcelor spokesman Luc Scheer declined to comment on or confirm the deal or the price.
"Laiwu is not that expensive for Arcelor, as it is virtually buying its way into the world's largest market," Liang Mingchao, an analyst with Tianxiang Investment Consulting said.
"Arcelor is no fool if it already has its exit plan worked out."
Arcelor Chief Executive Guy Dolle said last week that the company was aware of Chinese restrictions on foreign ownership, but Beijing might make exceptions in its case.
A PIECE OF THE ACTION
China's steel industry has expanded rapidly in the past year, causing its international players to fear a glut of Chinese exports could drive down steel prices worldwide.
To get in on the action, a number of global giants who have existing Chinese joint ventures are now looking for greater control through a direct investment.
Mittal's investment in the listed unit of Hunan Valin Iron & Steel has been the biggest deal to date, but such companies as South Korea's POSCO and Japan's Nippon Steel have said they are interested in greenfield projects or acquiring existing mills.
Some industry executives worry that they might be left out of China's rapid steel industry expansion if they do not get in now.
China could produce as much as 330 million tonnes of steel this year, up from 272 million tonnes in 2004, creating a surplus equal to Germany's annual output.
Arcelor's target is expected to produce 5.2 million tonnes of steel this year and is aiming for revenue of 20.1 billion yuan.
Arcelor already has an investment in a steel venture in Shanghai. Its shares were down 1.5 percent on Thursday, underperforming the wider Paris market's 0.9 percent fall. (Additional reporting by Lucy Hornby) ($1=8.105 yuan)
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