Shanghai: Arcelor Mittal, the world’s largest steelmaker, will raise its stake in Hunan Valin Steel Tube & Wire Co. after the Chinese steelmaker issues new shares to raise 2.3 billion yuan (Rs1,323 crore) to fund expansion.
Arcelor Mittal, which had 29.5% of Hunan Valin, will take 49.3% of the 520 million new shares on offer, boosting its holding to 33.3%, according to Bloomberg calculations. Hunan Valin will use the proceeds to fund growth, the Changsha, Hunan-based company said in a statement today.
China, the fastest growing major economy, is the largest maker and user of steel as companies construct more buildings and autos. Arcelor Mittal, which pours 10% of global steel, has been targeting growth in Asia, including China and India, the world’s two most populous countries.
“Hunan Valin is targeting higher-grade products to benefit from better profit margins and rising Chinese demand,” Ma Haitian, an analyst at Beijing Antaike Information Development Co., said today by phone.
Shares of Hunan Valin, which last closed at 5.54 yuan in Shenzhen on 31 January, surged by the 10% daily limit today to trade at 6.09 yuan.
Sridhar Krishnamoorthy, China manager for Mittal Steel Co., which last year bought Arcelor SA in the industry’s largest takeover, said the share placement would raise funds to help Hunan Valin increase its stakes in subsidiaries.
“More control of subsdiaries will help and improve operations, which will certainly benefit our shareholders,” Krishnamoorthy said in an interview today.
Hunan Valin will use the funds to buy a 12.3% stake in Hunan Valin Xiangtan Steel Co. from its parent, Hunan Valin Iron & Steel Group, Hunan Valin said in the statement to the Shenzhen Stock Exchange. Hunan Valin will also buy from its parent 6.2% of Hunan Valin Lianyuan Steel Co. and 10.6% of Hunan Valin Linglian Steel.
The company will also use the proceeds from the sale to increase output of steel plates to 1.8 million tons from 1.4 million tons, the company’s statement said. It will also build facilities to cut pollution from its mills, the statement said.
The share sale is subject to government approval.
Hunan Valin said in January that 2006 profit will rise between 50% and 100% as the company shifts to higher-grade production and lowers costs.