Baoshan Iron & Steel Co Ltd (Baosteel), China's largest steelmaker, rolled out its long-awaited additional share offer plan on Friday, with an aim to raise 25 billion yuan (US$3 billion) on April 20 to acquire steel mills, raw materials, logistics and trading assets from its parent company Baosteel Group.

It will be the largest-ever fund-raising effort in China. The company already pocketed over US$940 million in its initial public offering on the Shanghai stock market in 2000.

After the acquisition, Baosteel will take over the vast majority of its parent's steel making capacity, making it the world's eighth largest steel manufacturer, the company said in a prospectus on Friday.

The acquisition will lift the company's production of crude steel by 56 per cent to 18.5 million tons a year, the company said.

It will also increase the company's profit as much as 37 per cent to 12.9 billion yuan (US$1.56 billion) this year, should the deal be completed by May 1.

Baosteel's announcement of the share offer hit the stock market on Friday as investors grew concerned about large counters siphoning off much of the market's funds, stifling liquidity.

The benchmark Shanghai composite index slid by 1.4 per cent on Friday.

Shares of Baosteel outperformed the market, falling 1.3 per cent to 6.14 yuan (74 US cents).

Analysts said the offering is positive for the company as it helps expand the company's capacity, raises profitability, and enhances its control over raw material supply and transportation.

"We think the offering is generally positive," said Cai Haihong, a steel industry analyst with Merchants Securities. "The acquisition can help the company increase its production capacity and expand the value chain."

Baosteel will sell 5 billion additional shares, or 28.6 per cent of the total shares after the issue, on Wednesday. About 60 per cent of the shares, which are non-tradable, will be sold to its parent company - Baosteel Group.

The US$3 billion proceeds cover most of the acquisition cost of 27.5 billion yuan (US$3.3 billion). The balance comes from the company's own cash and bank loans, company executives said at a press conference on Friday.

Baosteel's Chairwoman Xie Qihua said her company is still considering an overseas listing to fuel the company's development.

"We have not yet scrapped the plan (for overseas listing)," Xie told reporters. "We are always ready for the move."

Analysts, however, warned risks to the steel industry are looming large as raw material prices are on the up while steel prices are waning.

Analysts expect steel prices to drop in the third and fourth quarters as the government moves to rein in run-away steel prices which increased by more than 30 per cent year-on-year in 2004.

Wu Xianfeng, an industry analyst with Guotai Jun'an Securities, expects the average steel price to increase by 10 per cent this year over 2004, with costs set to rise 12 per cent.

But Wu said Baosteel can outperform its peers because its large number of high end products will make it able to pass cost hikes on to downstream users.

(China Daily)