POSCO, Nippon to steel mutual stakes, clear growth path

20 October 2006

Mumbai: South Korea's POSCO and Japan's Nippon Steel will increase mutual holdings to ward off take-over bids amidst the rising wave of consolidation in the global steel industry. The two have also agreed to expand capital base and business ties to face challenges from growing Chinese production.

While Nippon will invest 445.1 million won ($464.6 million) in POSCO to increase its holding by two per cent, POSCO will invest the same amount to buy 111.6 million shares, or a 1.64 per cent stake, in the Japanese steel maker.

"The two firms have decided to expand their strategic alliance for a better position in the global steel industry," POSCO said in a filing with South Korean regulators. Nippon and POSCO have also agreed to supply each other with steel slabs.

POSCO also said in a separate filing that it plans to build a $361 million plant in Vietnam for the production of cold-rolled steel. The 700,000-tonnes per annum capacity plant is scheduled to start operating in late 2009. POSCO said it would build a 3-million-tonne hot-rolled steel plant in Vietnam and expand the capacity of the cold-rolled steel plant to a 1.5 million tonnes once the market there expands.

POSCO, a highly profitable company, is estimated to have 1.5 trillion won in cash and has been looking for growth opportunities outside the country. POSCO also announced plans last month to build a plant in Mexico to make steel plates, with an annual capacity of 400,000 tonnes.

The Korean steel major is also setting up a 12 million tonne plant in India. POSCO is also investing in India's infrastructure with a stake in the Haridaspur Paradip Rail Company, a private rail road project.