Trading suspension sparks talk of merger

TWO listed units of Shandong Iron and Steel Group have been suspended from trading as analysts forecast the parent plans to merge them into a single company as part of its consolidation efforts.

The move comes after another major steel producer Hebei Iron and Steel Group merged its three listed companies in September in line with the Chinese government's call to encourage mergers and acquisitions in its steel industry to curb overcapacity and to boost profit margins.

Shanghai-listed Laiwu Steel Corp and Jinan Iron and Steel Co said their parent, Shandong Iron, is planning a significant asset restructuring. Trading was suspended from yesterday, according to separate filings to the Shanghai Stock Exchange by the two units.

"The group aims to create a listed steel producer capable of producing more than 20 million tons annually," said Qiao Peitao, an analyst with Greatwall Securities Co. "It may do it in several steps starting with merging the two listed units." Analysts said Laiwu may be merged into the bigger Jinan unit.

"The group may later integrate Rizhao Steel Holding Group, which it acquired in September, into the listed unit," Qiao added.

Earlier in July, the group reshuffled high level executives from Laiwu and Jinan, hinting that a merger may be in the pipeline which aims to cut costs and enhance competitiveness through synergy.

The Chinese government has been encouraging consolidation in the domestic steel industry, which is the world's largest accounting for a third of global production, to make mills more competitive globally. The Ministry of Industry and Information Technology is drafting a guideline for M&As to boost the industry.

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