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Valin shares get a boost in Shenzhen

By Zhang Qi (China Daily)
Updated: 2009-12-29 08:08

A Valin Iron & Steel plant in Hunan province. Industry insiders said the company's listing plan is designed to support capacity expansion and overseas acquisitions. [China Daily]

Company contemplating IPO to expand capacity, say sources

Shares of Hunan Valin Steel Co, one of China's top 10 steel makers, surged nearly 8 percent in Shenzhen yesterday following unconfirmed reports that its parent was planning to list in Hong Kong.

The report said the steelmaker's parent company, Hunan Valin Iron & Steel Group, may seek to raise as much as 10 billion yuan through the float and use the proceeds to expand capacity.

The Hunan-based Xiaoxiang Morning Herald cited chairman Li Xiaowei, who made the remarks at a local government meeting.

Lai Bangchuan, secretary to the chairman, said he was unaware of the Hong Kong listing plan.

Hunan Valin Steel Co, the group's Shenzhen-listed unit, which is partly owned by the world's largest steel maker ArcelorMittal, rose 8 percent to 7.75 yuan in Shenzhen trading yesterday.

Li also said the company aims to double its profit next year, forecasting its steel production will hit 19 million tons in 2010, the newspaper reported.

Industry insiders said Valin's listing plan is designed to support capacity expansion and overseas acquisitions.

Li Xiaowei said earlier in March that the company plans to expand its annual production capacity to 30 million tons by mergers and acquisitions over the next few years.

Valin produced 10.83 million tons of crude steel in 2008, classifying it as a second-tier steel maker when compared with the country's largest steel mill Baosteel and the second largest mill, Hebei Steel.

Li said Valin would succeed in its expansion goals via mergers or acquisitions, launching it to the sector's first tier.

China Business News reported earlier this month that Valin is eyeing Hunan Lengshuijiang Iron & Steel Co Ltd, a rebar and low-end construction steel producer that has a different product mix from Valin.

"Valin also needs money to construct facilities such as ports to reduce its logistics costs", said Yu Liangui, a senior analyst with online consulting firm Mysteel.

Yu said Valin's Hong Kong IPO plan may also be linked with the Chinese government's recent activities to curb overcapacity.

The central government in October announced plans to curb expansion of six industry sectors - including steel - by withholding approvals for new investments and tightening financing.

"This may force Valin to turn to Hong Kong for a listing," Yu said.

In March, Valin paid A$1.27 billion for a 17.4 percent stake in Australia's Fortescue Metals Group. The move helped the steel maker bolster its iron ore supply and made it the iron-ore miner's second largest shareholder.

Chinese steel mills have long sought overseas acquisitions to secure their iron ore supplies, thus helping move forward their capacity expansion plans.

The latest company in this process was Chinese steel maker Wuhan Iron & Steel Group which invested $400 million to purchase a 21.52 percent stake in Brazilian iron ore miner MMX Mineracao e Metalicos SA.

This was followed by Wuhan Steel's $247-million investment in Australian iron-ore firm Centrex, and Shanghai-based Baosteel's acquisition of a 15-percent stake in Aquila Resources.