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Valin to set up mergers fund

HUNAN Valin Iron & Steel Group has agreed to set up an investment fund with China Huarong Asset Management Corp, seeking acquisition opportunities in the steel industry.

This will be China's first such fund dedicated to steel-sector investment, though its initial size - 1 billion yuan (US$146 million) - won't be very large.

The fund will rise to anywhere from 5 billion yuan to 10 billion yuan in the long term and help Valin conduct mergers and acquisitions "on a wider scope" and "expand at low cost," the company said in a statement on its Website yesterday. The money will be mainly used for investment and acquisitions in the steel sector.

The Chinese government is pushing for consolidation in the fragmented steel sector, the world's largest, to boost its competitiveness globally and its negotiating power in the purchase of raw materials.

Despite the current slowdown in consolidation within the global steel industry, nearly 70 percent of steel executives are still considering an acquisition, and China is likely to lead the effort in domestic M&A activity, according to a study released in April by Deloitte Touche Tohmatsu.

While only one quarter of executives surveyed by Deloitte described the current climate for acquisitions as being "very competitive," almost two thirds expected competition to increase over the next three years.

Hunan Province-based Valin acquired a 17.3 percent stake in Australian miner Fortescue Metals Group Ltd for 1.3 billion Australian dollars (US$1.1 billion) this year. Huarong already owns about 12 billion yuan worth of domestic steel companies.


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