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Sat, Feb 25, 2006 - Page 12 News List

China approves Acelor steel firm stake

GREEN LIGHT Provincial authorities approved a plan whereby the European steel giant will expand its global operations with a 40 percent stake in Laiwu Steel Corp

AFP , SHANGHAI

European steel giant Arcelor SA has won initial approval to buy a 38.41 percent stake in China's Laiwu Steel Corp (萊蕪鋼鐵) for 2.09 billion yuan (US$258 million), a source close to the deal said yesterday.

"We have the green light from provincial authorities," the source told reporters, adding the deal would be signed and announced later yesterday.

"We will take a 38.41 percent stake and it represents a deal worth 2.086 billion yuan," the source said.

The agreement still requires central government approval, the source said.

The deal comes as Arcelor fights off a hostile 18.6 billion euro (US$22.7 billion) bid by Mittal Steel Co, the world's leading steel producer at 57.6 million tonnes.

The French-Spanish-Luxembourg consortium is aiming to fend off the Mittal challenge by expanding its global operations through deals such as the one with Laiwu, which is based in eastern China's Shandong Province.

The signing is particularly timely for Arcelor after it was forced to abandon Thursday its pursuit of a 20.5-percent stake in Turkish steel group Erdemir.

Arcelor already has a 12-percent interest in a venture in Shanghai with Baoshan Iron and Steel (Baosteel, 寶鋼), China's largest steel company, and Nippon Steel Corp of Japan.

It also has a stake in an automobile steel project with Baosteel, which Arcelor chief Guy Dolle has said is worth US$800 million.

Arcelor, which is the world's second biggest producer of steel with an annual output of 47 million tonnes, initially sought a controlling share in Laiwu, a group which turns out 10 million tonnes a year.

But under rules implemented in July last year, foreign companies were forbidden from taking majority stakes in Chinese steel mills.

As the largest steel-producing nation in the world since 1986, China's decision to deem steel a strategic sector came in support of the billions of dollars already spent on upgrading its mills so they could compete with global rivals.

Despite the setback for overseas groups, companies are still eager to get a foothold in China, as steel demand is expected to exceed 400 million tonnes annually, up from 349.36 million tonnes.

In September, Mittal Steel paid US$338 million or a 36.67 percent stake in China's Hunan Valin Steel Tube and Wire (湖南華菱鋼鐵管線), another of China's leading mills with capacity of around 10 million tonnes.

In 2004, Laiwu steel recorded profits of 2.65 billion yuan on revenues of 36.2 billion yuan, according to the company Web site.

Laiwu said in a statement to the Shanghai stock exchange that trading had been suspended yesterday pending an announcement that would involve the transfer of shares from its largest shareholder, Laigang Group. The group was not immediately available for comment on the imminent announcement.

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