THE merger of Baoshan Iron and Steel Co with Wuhan Iron and Steel Group has been approved by the State Council, the country’s asset watchdog announced yesterday.

Accordingly, the listed companies of Baosteel, including Xinjiang Ba Yi Iron & Steel Co and Shanghai Baosteel Packaging Co, released statements saying Baoshan would issue 5.65 billion stocks at 4.60 yuan (70 US cents) in exchange for Wuhan Iron and Steel’s shares.

Baosteel will hold 52.1 percent stake in the newly formed entity, Baowu Iron and Steel Group, while Wuhan Steel will have 13.48 percent.

Baosteel Group earned 230 billion yuan in revenue last year and made a profit of 1 billion yuan — ranking 218th in the Fortune 500 list.

Wuhan Steel, however, lost 11.4 billion yuan last year after managing an annual revenue of 101.8 billion yuan.

After the merger, Wuhan Iron and Steel Group will delist from the A-share market. Trading in both the two companies remain suspended since June when the merger plan was proposed.

Before the suspension, Baoshan closed at 4.90 yuan, and Wuhan Iron and Steel at 2.76 yuan.

Analysts say such re-organization between state-owned steelmakers is an effort by the Chinese government to boost supply chain reform.

“Last year, the top-10 steelmakers in China bottomed at 34.2 percent in market share while overcapacity was hurting the industry,” Citic Securities said in a note yesterday. “Merging helps to increase the industrial concentration rate and upgrades the industry.”

While a giant was emerging to enhance competitiveness, in north China Liaoning-based Dongbei Special Steel Group confirmed it will be restructured due to bankruptcy. The company was saddled with debt totaling 5.07 billion yuan.

Source:Shanghai Daily