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Baosteel controls 56.15% of rival

BAOSTEEL Group Corp agreed yesterday to take control of Ningbo Iron & Steel Co for 2.02 billion yuan (US$295 million) - the first such deal since the State Council approved a stimulus plan for the sector in January.

It will own 56.15 percent of Ningbo Steel, according to a Baosteel statement. Hangzhou Iron & Steel Group will retain its 43.85 percent stake in Ningbo Steel.

The deal marked another cross-provincial acquisition made by Shanghai-based Baosteel, China's industry leader, which had taken over smaller competitors in Xinjiang Uygur Autonomous Region and Guangdong Province.

Ningbo Steel was set up in 2003 as a privately owned company. Its private-sector shareholders, including Jianlong Steel, sold their combined holdings of 56.15 percent to the Zhejiang Province government at the end of last year as they quit the steel maker, citing poor management and a financial crisis.

Still, this is believed to be a good deal for Baosteel as Ningbo Steel is adjacent to Beilun Port - one of China's major iron ore import terminals - near Shanghai and the main steel market. Ningbo Steel has an annual production capacity of 4 million tons, versus about 30 million tons for Baosteel.

Under a further restructuring plan, the Ningbo government will inject capital to Ningbo Steel to enlarge its share base. As a result, state-run Hangzhou Steel will have its stake cut to 34 percent while Baosteel will remain Ningbo Steel's controlling shareholder.

The deal is also the first major one in China's steel industry since the State Council, or China's Cabinet, approved a sectoral stimulus plan in January which urges more aggressive consolidation to help China gain bargaining power in annual iron ore price negotiations. China is seeking the first cut in seven years for benchmark contract prices for the steel making ingredient.

China's steel industry, the world's largest, is struggling with capacity oversupply on the global economic slump. It produced 500.5 million tons of crude steel in 2008, out of a capacity of 660 million tons.


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