At a promotional meeting regarding the issuance of convertible bonds with warrants, persons close to the matter from Baosteel have told reporters that restructuring of steel enterprises in Guangdong Province are still undergoing feasibility studies. Pursuant to national policies, Baosteel Group will take over Shaoguan Iron and Steel Group and Guangzhou Iron and Steel Group in Guangdong Province. It plans to shut down the lower manufacturing capacity of these two local steel makers before its application for construction of a flagship steel mill, located in Zhanjiang, a port city of Guangdong Province.

Chen Yin, deputy general manager and secretary of the board of the company, announced that Baosteel Group will support its main lines of businesses by injecting high-quality iron & steel assets into the company at the appropriate time. On 23 June 2008, trading in shares of the company was suspended due to the acquisitions of Guangdong-based steel companies, in which its parent Baosteel Group was involved.

Xu Lejiang, chairman of board of the company, stressed that iron & steel are the main lines of business for the company. By building new plants and acquiring local steel companies, the company aspires to reach a 50 mln ton iron & steel production capacity by 2012. However, no specific timetable is currently available for such mergers and acquisitions. Xu emphasized that the company aims to become the most competitive steel company in the world.

At present, investors are cautious as to whether the Luojing Iron & Steel project will show profit soon after being acquired by the company, which is to be funded by the company’s issuance of corporate bonds. Chen Yin explained that the acquisition meets the company’s strategic planning goals as the project adopts COREX technology and is engaged in the manufacturing of heavy plates.

In addition, persons from the company have disclosed that there is a possibility of stronger governmental regulatory measures if irrational steel export growth is seen. More government control on steel exports is likely for 2008, as steel exports are experiencing large YOY decreases The government has carried out a series of policies including lower export rebates to discourage the export of middle and low-end steel products. The company, however, is mainly engaged in the export of high-end plates and as a result has only been slightly affected by such policies.


Source: China Securities Journal

Date: 23 Jun 2008

CN01/MZ/AR/KM