Russia's steel company Evraz in $1.5bn China move

Evraz, Russia’s second-biggest steel company, is set to secure an important foothold in China through an outline deal to buy Delong Holdings, a mid-sized Chinese steelmaker, for about $1.5bn.

The move to buy the privately-owned company – listed on the Singapore stock exchange – underlines the interest by large global steel producers in taking control of steel mills in China.

The country is by far the world’s biggest producer and consumer of the material.

Evraz – in which the biggest shareholder is Roman Abramovich, one of Russia’s wealthiest industrial tycoons, who also owns Chelsea football club in London – has most of its production in Russia. It also has a base in the US through its $2.3bn purchase in 2006 of Oregon Steel.

Alexander Frolov, Evraz’s chairman and chief executive, said the effort to buy Delong, which is based in Hebei province in northern China, and last year had a steel production capacity of 2.4m tonnes a year, “is a critical strategic move to expand our global footprint”.

Evraz has agreed to buy 10 per cent of Delong at S$3.9459 a share from Best Decade Holdings, its controlling shareholder.

The Russian company could raise this later to 51 per cent, and take over full control of Delong by buying out other shareholders in a move that would value the whole of the steelmaker at about $1.5bn.

The deal is subject to approval from the Chinese government, which in the past has held out against foreign steelmakers taking over control of China-based steel makers.

This has been on the grounds that steel production is a strategic industry for China as a result of which local companies need to be protected from takeover.

But it is believed Evraz executives have sounded out Beijing on the proposal and have been given indications that there is a good chance the deal will be allowed to proceed.

That may be related to the relatively small size of Evraz’s target, which is some way from being in the league of China’s steelmaking giants such as Baosteel and Anshan Iron and Steel.

Luxembourg-based ArcelorMittal, the world’s largest steelmaker, adopted a similar tack to Evraz in December, through making a bid for the shares it does not own in Hong Kong-listed China Oriental, another Chinese privately owned steelmaker.

That move – which could mean Lakshmi Mittal’s company takes over China Oriental for about $2bn – is also subject to approval from the Chinese authorities.

Delong mostly makes hot-rolled steel coils, and has announced plans to expand its steel production to more than 3.3m tonnes this year.

Last year, China accounted for a third of world steel production of 1.3bn tonnes, with its output rising fast in line with the country’s expanding economy.

(Financial Time)

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