Wuhan Steel soars on plan to buy assets
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E-mail Shanghai Daily, November 28, 2012
Shares in Wuhan Iron and Steel Co surged Tuesday after the major Chinese steel mill announced a 15 billion yuan (US$2.41 billion) private placement to acquire mining assets from its parent.
The company plans to issue as many as 4.2 billion A shares to up to 10 shareholders, including its state-owned parent, Wuhan Iron and Steel Group, according to a filing to the Shanghai Stock Exchange.
Wuhan Steel shares rose as much as 10 percent yesterday before abating and closing at 2.56 yuan, a gain 5.35 percent, while the Shanghai Composite Index was down 1.3 percent. Trading in Wuhan Steel shares had been suspended since October 30 pending the announcement.
The company said the proceeds will be used to buy its parent's iron ore assets in China, Canada, Brazil, Australia and Liberia, as part of efforts to increase the self-sufficiency rate of the key steel making ingredient.
China's steel industry has been struggling with overcapacity, weakening demand and high raw material prices. And mining operations are perceived to be more profitable than steel making.
But some analysts remained cautious about Wuhan Steel's asset purchase plan.
Reserves at these overseas mines are huge but the majority of them are low-grade mines with 30 percent iron content, according to Industrial Securities analyst Lan Jie. "Also the development of overseas mines will face many uncertainties," he said.
Huatai Securities, however, maintained its "neutral" rating on Wuhan Steel.
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