Mittal to buy 37% of Chinese steelmaker

THE BALTIMORE SUN

NEW YORK - Mittal Steel Co., which is set to become the world's biggest steelmaker, agreed yesterday to buy about 37 percent of Hunan Valin Steel Tube & Wire Co. for 2.6 billion yuan ($314 million) to add production in China.

State-owned Hunan Valin Iron & Steel Group will sell the stake for 3.96 yuan a share, Netherlands-based Mittal Steel said. That would be a 13 percent discount from yesterday's closing price. Hunan Valin Steel Tube is China's seventh-biggest steelmaker by market value.

A stake in Hunan Valin, based in Changsha in China's Hunan province, could help Mittal Steel gain sales in nearby Guangdong and other southern provinces that are leading growth in Asia's second-largest economy.

Mittal Steel is competing with Luxembourg-based Arcelor SA and Japan's Nippon Steel Corp. in its attempt to boost its share of China's steel market, the world's largest. China's economy grew more than 9 percent last year.

"It's much easier for foreign companies to buy into medium-sized Chinese steel mills, rather than larger ones like Baoshan Iron & Steel Co., because of the lower transaction costs," Zheng Dong, a Shenzhen-based analyst with Guosen Securities Co., said in a telephone interview.

Hunan Valin made more than 5 million metric tons of steel bars, rods and tubes in the first nine months of last year, posting net income of 701 million yuan on record sales of 16 billion yuan, according to Mittal Steel.

"This is a key acquisition," Chairman and Chief Executive Officer Lakshmi Mittal said in a statement. "It provides us with our first production platform in the world's fastest-growing steel market."

Mittal Steel supplies China with crude steel and flat products used in refrigerators and cars through its Ispat Karmet mill in Kazakhstan, said Brian Levich, steel analyst for industry consultant Metal Bulletin Research in London.

Lakshmi Mittal, 54, will put together the world's biggest steelmaker this quarter when he buys Cleveland-based International Steel Group Inc. for $4.5 billion, overtaking Arcelor. Adding Hunan Valin would boost Mittal Steel's capacity by an additional 10 percent after the ISG acquisition.

ISG, created by financier Wilbur Ross, is the largest U.S. maker of steel plate and owner of the assets of Bethlehem Steel, which it bought in 2003 for $1.5 billion. The steel industry categorizes plate as sheets more than 8 inches wide and more than one-quarter of an inch thick.

Mittal, a native of India, started out with a steel mill in Indonesia in 1976. By April, the London-based entrepreneur will lead a company that has plants in 14 nations and production capacity of about 70 million tons a year.

Mittal Steel and Valin Group will each own 37.17 percent of Shenzhen-listed Hunan Valin.

The transaction, to be completed in the spring, is subject to approval from the China Securities Regulatory Commission.

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