China Steel looks to buy shares

China Steel Corp (中鋼), Taiwan's biggest steelmaker, may buy as much as 10 percent of its shares from the government to help boost the stock price, Chairman Kuo Yen-too (郭炎土) said.

A plan by China Steel's biggest shareholder, the Ministry of Economic Affairs, to sell its 40 percent stake in the company has damped the stock's gains, Kuo said in a telephone interview.

Buying a quarter of that stake, worth about NT$18 billion (US$519 million), would reduce the concerns investors have about the sale.

``We have always wanted to take this route, and we are discussing with the government how to do this because of some existing restrictions'' on how the government sells shares, Kuo said. ``For the rest of the ministry's shares, there are many ways of selling them, including finding a strategic investor.''

China Steel is the fourth-worst performer of the Taiwan Stock Exchange's 24 listed steel companies, rising 50 percent compared with a 10-fold increase at affiliate Yieh Loong Co (燁隆).

China Steel joins Chunghwa Telecom Co (中華電信) in trying to boost its stock under the threat of a government sale.

Taiwan's dominant phone company said Tuesday it may buy back about 10 percent of its outstanding shares and cancel the stock after the communications ministry failed four times earlier this year to sell a 5.7 percent stake in the company to domestic investors.

For China Steel, which had about NT$17 billion of cash, cash equivalents and short-term investments on Sept. 30, buying the shares ``is a very good idea,'' said Chu Yen-min, an analyst at Yuanta Core Pacific Securities Co (元大京華證券).

``The Ministry of Economic Affairs has been talking about selling shares for a long time,'' Chu said. ``With the stock price gains recently, people think it will sell anytime, so gains are capped."

To further reduce the effect of the government's share sale plan, the company is keen to seek partners such as Posco, Nippon Steel Corp, and other rivals in Japan and South Korea to buy a stake of probably less than 10 percent, Kuo said.

Steel stocks are up as the industry recovers from a slump in prices last year to 20-year lows that drove some US producers such as LTV Steel Co and Bethlehem Steel Corp into bankruptcy.

The price of imports to China of cold-rolled steel, used to make cars, has risen 63 percent this year to about $395 a tonne, according to Metal Bulletin. China Steel typically sells hot-rolled and cold-rolled steel to local companies that process it into finished products such as pipe and building materials intended for export.

"The steel industry's positively linked to the economy,'' said Karvin Huang, a fund manager at Shinkong Investment Trust Co (新光投信). ``If in the first half of next year, people are still not comfortable about electronics makers stocks, then you can't ignore China Steel.''

The recent recovery in demand has prompted China Steel twice this year to raise its 2002 profit forecast. China Steel is projecting net income of NT$16 billion this year after earning NT$7.5 billion in 2001.