Evraz Bids For Chinese Steel Firm Delong

Steelmaker Evraz said Tuesday that it was seeking to buy a Chinese steel products maker in a move to expand into China, the world's fastest-growing market.

It has entered into a pact to buy 51 percent of Singapore-listed Delong Holdings, Evraz said, adding that it would make an offer to buy the remaining shares.

The company will pay 3.95 Singaporean dollars ($2.80) per share for the stake and will offer the same price for the remaining shares, valuing Delong at about 2.1 billion Singaporean dollars ($1.5 billion).

Delong shares, which were halted Tuesday, last traded Monday at 3.02 Singaporean dollars.

"This investment by Evraz in the Chinese steel sector, our first in the Asia Pacific region, is a critical strategic move to expand our global footprint," Evraz chairman and chief executive Alexander Frolov said in a statement released in Singapore.

Evraz, part owned by billionaire and Chelsea football club owner Roman Abramovich, has been expanding to markets including Africa and the United States. Most recently, Evraz bought U.S.-based Claymont Steel.

The acquisition of the 51 percent stake is subject to antitrust clearance by the Chinese government.

The takeover may allow Evraz to bypass laws that bar overseas companies from taking control of steelmakers listed in mainland China. It follows a similar purchase by ArcelorMittal of a Hong Kong-listed company.

"Since the government hasn't imposed any restriction on the purchase of overseas-listed steelmakers, Evraz and ArcelorMittal's takeovers may prompt more medium and small steelmakers like Delong to seek overseas partners," Li Xinchuang, vice president of China Metallurgical Industry Planning and Research Institute, said Tuesday.

The Russian company said it did not intend to change Delong's management following the acquisition.

Evraz said it was buying the stake from Best Decade Holdings, which owns 77.08 percent of the steel products maker. Delong chairman Ding Liguo owns a majority stake in Best Decade.

The acquisition includes an initial buy of about 10 percent of Delong shares for 3.95 Singaporean dollars each, and options to buy an additional 32.08 percent for 3.95 Singaporean dollars per share under certain conditions. The options last six months. In addition, Best Decade will sell another 8.97 percent of Delong at the same price to Evraz after certain restrictions are lifted.

"This seems to be a good price and the right size bite for Evraz" in China, said CIMB-GK analyst Lawrence Lye. The offer is close to the all-time high of 4.02 Singaporean dollars that Delong shares hit in July, he noted.

The initial stake was bought at a 31 percent premium to the closing price on Monday.

The discrepancy "is mostly because of the structure of the deal," Goh Han Peng, a Singapore-based analyst at Kim Eng Securities, said Tuesday by phone. "In this instance, the major shareholder has only agreed to sell a portion of its shares currently."

The Singapore office of Merrill Lynch is acting as financial adviser to Evraz, while Citigroup is advising Best Decade.

AP, Bloomberg