China's BaoSteel, the country's largest steel maker, is due to unveil a major reorganization possibly Thursday that will see the group's domestically listed arm begin to acquire the core steel assets of the parent company in Shanghai.

The shares of the listed company, Baoshan Iron & Steel (600019.SH), were suspended from trading in Shanghai on Tuesday and Wednesday ahead of the announcement providing details about the group's reorganization.

The company's board met in Shanghai on Wednesday. Sources say that board is expected to approve of a plan for reorganization and listing of the company's entire assets.

The listed arm declined to comment but analysts say there are two possible outcomes from the meeting. The first scenario is that the company offers rights issue. The second scenario is simply to offer additional shares to both individual and institutional investors. The amount of financing is estimated be to 20 billion yuan (US$2.4 billion). The proceeds will then be used to buy assets from its parent.

The state-owned parent group holds a 85 percent stake in Baoshan Iron & Steel, which is now the third biggest in China and a favorite of local investors. The announcement is likely to be made Thursday, when the company holds a board meeting in Beijing prior to releasing its results.

Baoshan Iron & Steel produced about 20 million tons of steel last year, a little under 10 percent of China's total output, and plans to lift production by 50 percent to 30 million tons within five years.

The reorganization to create a single listed entity should make the company much more attractive to investors by increasing the transparency of its steel operations.

Fu Luolong, an analyst at Yinhua Funds in Shenzhen, said the listed company had reached a "bottleneck in its development, with the completion of a relatively mature assembly line."

However, Fu said that the listed company would also be taking on substantial risks by acquiring some of the underperforming assets of its parent.

BaoSteel's first-half pretax profit rose 49.2 percent year on year and revenue rose 53.6 percent year on year, according to a speech expected to be delivered by the company's chairwoman, Xie Qihua.

Despite challenges in the steel market, Baoshan Iron and Steel "maintained a healthy development," said Xie.

(Shenzhen Daily August 12, 2004)