Jinan Iron and Steel Co., the publicly traded unit of China's eighth biggest steel maker, will raise as much as 1.99 billion yuan (US$291 million) selling yuan-denominated shares to fund purchases of assets from its parent.

Jinan Steel would sell up to 380 million shares at 5.24 yuan apiece in Shanghai on Friday, the Shandong Province-based company said yesterday in a statement to the Shanghai stock exchange. The proceeds would help buy 6.74 billion yuan worth of assets from the parent, Jinan Iron and Steel Group, including a hot-rolling plant, a cold-rolled mill and a power plant, Bloomberg News reported.

China's stock market has tumbled 66 percent this year, leaving Jinan Steel unable to raise all the funds for the purchases via share sales. China is encouraging state-owned companies to inject assets into publicly traded units to improve competition and facilitate mergers to remove excess production capacity. The company did not say how it would raise the remainder of the funding.

Jinan Steel fell 1.4 percent to 5.11 yuan by 10am yesterday in Shanghai compared with a 1.7 percent decline by the CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen. The shares have tumbled 73 percent since the company's shareholders approved the additional share offering last November.

Existing investors could buy two new shares for every 10 they hold, the statement said. The Jinan Iron and Steel Group would buy as much as 261 million shares to retain its 68.7 percent stake in the company, Jinan Steel said. Jinan Steel Group pledged not to sell the shares for at least 12 months.

Consolidating steel assets into the single unit would boost Jinan Steel's output to 6.42 million tons from 4.96 million tons, Jinan Steel said last November.

(Shanghai Daily October 23, 2008)