ArcelorMittal in talks with Angang Steel

Tuesday, May 13, 2008

ArcelorMittal, the world's biggest steel producer, has held informal discussions with Angang Steel about working with China's second-largest steel company in an effort to extend its presence in the country.

Lakshmi Mittal, the Indian billionaire chief executive and main owner of ArcelorMittal, proposed buying a near 25 per cent stake in Angang to Zhang Xiaogang, Angang's chairman, in a private meeting just over two months ago.

Although financial terms were not discussed, a 25 per cent stake in Angang would cost ArcelorMittal at least $5bn, according to Angang's current market valuation.

While Mr Zhang turned down Mr Mittal's suggestion that ArcelorMittal should be allowed to take a 20-30 per cent stake in the government-controlled company, he told the Financial Times he would be keen in principle to allow the Luxembourg-based company a much smaller shareholding in Angang of 1-2 per cent. He was also open to co-operating with ArcelorMittal, for instance in new steelmaking or mining projects.

"We [Angang and ArcelorMittal] can work together. We have similar ideas," Mr Zhang said in an interview at Angang's headquarters in Anshan, northern China.

Mr Zhang said he thought Angang could gain useful international experience through working with ArcelorMittal, perhaps through both companies taking an equity stake in a stand-alone production venture.

Mr Mittal said: "ArcelorMittal has made no formal proposal for any kind of joint project involving Angang Steel. However, I had an informal discussion with Mr Zhang about various possibilities. As part of this, I tossed around a number of ideas.

"This is similar to the discussions I have with many steel companies."

Angang is listed on the Hong Kong stock exchange, with a controlling shareholding of 67 per cent owned by Anshan Iron and Steel, a Chinese government company.

Last year, Angang produced 16m tonnes of steel, putting it in second place behind Baosteel, the industry leader in China with an output of nearly 30m tonnes annually.

Mr Mittal's overture to Mr Zhang is part of his long-term effort to become a large force in the Chinese steel industry, which is by far the world's biggest but in which participation by foreign groups is subject to strict controls by Beijing.

Beijing has a general policy of not allowing majority ownership of steel companies by non-Chinese businesses.

ArcelorMittal currently has a 32 per cent stake in Hunan Valin Tube Steel & Wire, a leading Chinese steelmaker. It also is poised to take control of China Oriental, another China-based steel company, through a series of stockmarket transactions.

Last year ArcelorMittal accounted for 13 per cent of world steel production outside China, but only 0.7 per cent of steel production from China.

Source: FT