China Baowu Steel to take control of stainless steelmaker TISCO

BEIJING (Reuters) – China Baowu Steel Group, the country’s top steelmaker by output, has agreed to take a controlling stake in Taiyuan Iron & Steel (Group) Co Ltd (TISCO) in the latest consolidation of the country’s mammoth steel sector.

Baowu Group reached agreement with Shanxi State-owned Capital Operation Co Ltd on Friday to take a 51% stake in TISCO, a filing on the Shenzhen Stock Exchange by TISCO subsidiary Shanxi Taigang Stainless Steel (000825.SZ) said.

The 51% stake is worth 14.5 billion yuan ($2.10 billion), based on an audit of TISCO’s net assets, although Baowu will not pay anything as the deal is a state-backed restructuring.

China, the world’s biggest steel producing country, has called for steel consolidation to achieve orderly market competition and reduce emissions.

The agreement will make China’s State-owned Assets Supervision and Administration Commission an indirect shareholder in TISCO via its 100% ownership of Baowu, the statement said.

Since its creation through a merger of Baoshan Iron & Steel and Wuhan Iron & Steel in 2016, Baowu Group has expanded by acquiring Maanshan Iron & Steel (600808.SS) in 2019 and aims to take control of Chongqing Iron & Steel (601005.SS).

A controlling stake in TISCO will help Baowu achieve a goal of producing 100 million tonnes of steel per year and “enhance its overall competitiveness in the stainless steel sector,” Baowu said in a statement.

An analyst who declined to be identified said the deal could give Baowu more influence over stainless steel pricing in China, which is dominated by Tsingshan Holding Group.

“TISCO’s stainless steel is used more in high-end products,” the analyst said.

TISCO, China’s second-biggest stainless steelmaker after Tsingshan, has an annual steel capacity of 12.9 million tonnes, including 4.5 million tonnes of stainless steel.

The restructuring plan requires the state-asset regulator’s approval and an anti-monopoly review, Baowu Group said.

Trading in Taigang Stainless Steel’s shares was halted on Friday ahead of the announcement. It will resume on Monday.

Taigang posted a 49.4% drop in first-half net profit as the COVID-19 pandemic reduced downstream demand, a separate filing to the Shenzhen bourse said.

It said its stainless steel exports fell 17.7% in January-June from a year earlier and it was “not optimistic” about the second-half outlook.

($1 = 6.9055 Chinese yuan)

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