Baosteel Group Corp has bought a tiny stake in Xinhua Metal Products Co in Jiangxi Province for 200 million yuan (US$27 million), paving way for it to take control of the smaller producer later.

Baosteel, China's top mill, acquired 20 million shares at 10 yuan each in a private offer, Xinhua Metal said in a filing to the Shanghai Stock Exchange yesterday. They represent a 1.44-percent stake.

The local government and state asset regulator in Jiangxi Province are restructuring Xinhua Metal and hope to introduce companies like Baosteel as strategic investors to boost its competitiveness.

"To get Baosteel in has been long discussed, and the private offer is only the first step," a Xinhua Metal official said.

Xinhua Metal sold a total of 200 million shares via the private share placement to eight companies, which also include China Shipbuilding Industry Corp. Investors are subject to a one-year lock-up period for the new shares.

Xinhua Metal manufactures products including steel plates for the shipbuilding industry. Shanghai-based Baosteel has also been a long-term investor in the sector.

Baosteel in March agreed with China State Shipbuilding Corp to construct China's largest shipyard with total investment of more than 10 billion yuan on Shanghai's Changxing Island. Baosteel has a 35-percent stake in it.

Baosteel co-invested in another shipyard in Shanghai's Waigaoqiao in 1999.

Xinhua Metal gained 4.36 percent to 15.57 yuan yesterday. Baoshan Iron & Steel Co, Baosteel's listed unit, rose 6.63 percent to 16.56 yuan, which was also spurred by market talks that Baosteel may launch a bid for Anglo-Australian mining giant Rio Tinto.

China's industry planner has been encouraging consolidation in the nation's highly fragmented steel industry, the world's largest.

Baosteel has bought control of Bayi Iron & Steel in northwestern China's Xinjiang Uygur Autonomous Region and approached others such as Baogang Group, based in Inner Mongolia Autonomous Region, for acquisitions.

(Shanghai Daily December 6, 2007)