(Chinanews.com.cn)
Updated: 2007-01-13 11:01

Xinjiang Bayi Iron and Steel Co Ltd will sign an agreement with Shanghai Baosteel Group for assets restructuring. On January 16, Baosteel will invest 3 billion yuan ($40.61 million) to buy the shares of Xingjiang Bayi Iron and Steel Co, making it become a subsidiary of the Baosteel Group.

Based on this agreement, Xinjiang local government will still own 15 percent of the shares of Bayi Iron and Steel Co after restructuring. As the main shareholder of Bayi Iron and Steel Co, Baosteel Group will make a structured reform to Bayi, stripping its main industrial sectors from subsidiary ones. After restructuring, the assets owned by Bayi will increase substantially. This will be the first acquisition deal that Baosteel has made in China.

The two companies started to establish a business relationship on March 11, 2006, when Bayi signed an agreement to become a strategic partner of Baosteel. After that, Baosteel conducted a thorough investigation on Bayi. In last October, the two companies made a draft plan for new development. According to this plan, Bayi's steel production will reach 4 million tons in 2007 and 6 million tons by 2008.

Bayi is the largest iron and steel company in Xinjiang Uygur Autonomous Region. The steel plates for building produced by Bayi have occupied over 75 percent of market shares in Xinjiang. The acquisition case enables Baosteel to make use of Bayi's geographical location between Asia and Europe to exploit the potential steel consumption market in the central Asian region, thus expanding Baosteel's business scope.

Analysts say that this is one of the big acquisition cases made in Chinese steel industry, indicating that the process of industrial restruturing is accelerating in the steel sector.