BEIJING, June 5 -- Handan Steel, which lists yuan-denominated A shares in Shanghai, said Friday its parent would buy back as much as 25 percent of the fast-growing regional steel mill's shares over the coming year to protect minority investors.
The announcement came a day after news that industry leader Baosteel had acquired a stake in Handan, and led local media to suggest a takeover battle was looming, even though the parent, State-owned Handan Iron and Steel Group, already holds a 59 percent stake in its listed subsidiary.
The parent company would spend at least 1.5 billion yuan (US$187 million) to buy up to 700 million Handan shares.
A stake of 700 million shares would cost about 3.24 billion yuan at Friday's price of 4.63 yuan per share.
On Thursday, listed Handan said that Baosteel and two of its units together controlled 5 percent of its shares with the potential to increase that stake to 10 percent if warrants were exercised.
Parent Handan said in Friday's statement it would buy back Handan stock "in order to protect small and medium-sized investors' interests and to offset demand for warrants".
The prospect of a tussle over Handan has electrified China's stock market in recent days, helping to drive up steel sector shares as the overall market rebounds from a long slump.
The affair also suggests Central Government efforts to promote consolidation in the steel and other industries are running into resistance in the regions, some of which are eager to protect their local champions.
Baosteel, the State-owned parent of Shanghai-listed Baoshan Iron and Steel Co., is at the forefront of a push by the government to make its larger steel mills more competitive and force smaller ones to merge or shut. It has recently announced a string of acquisitions and strategic partnerships.
As part of the consolidation drive, older steel mills in the north of Hebei have already been merged into one giant, Tangshan Iron and Steel. But in the southern part of Hebei, a similar plan has faltered, as smaller mills have resisted merging with Handan.
"The area needs a dragon. The steel market is pretty good in the region and it's a good investment opportunity," said Zhou Xizeng, steel analyst at CITIC Securities Co. in Beijing.
Handan shares have risen 47 percent so far this year, in part on takeover speculation. They closed down 4.5 percent Friday at 4.63 yuan a share.
Handan Group became China's 11th-largest steel producer last year, with output of 7.34 million tons. This was dwarfed by Baosteel's 22.73 million tons, although in China's fragmented market, where hundreds of mills produced 349 million tons of crude steel in 2005, even Baosteel's market share is less than 7 percent.
Handan's hot-rolled mill, now under construction, was one of the last large projects to get approval before the government clamped down on steel capacity expansion. The company is spending up to 20 billion yuan to move to a new, upgraded site by 2010.
Baosteel has not publicly explained the reasons for its interest in Handan. Nobody from the company was available for comment Friday.
Some analysts believe that Baosteel may be content if it merely profits from a rise in Handan's shares.
(Source: Shenzhen Daily/Agencies)
