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Print[Ferro-Alloys.com] Baoshan Iron & Steel Co (Baosteel), China's biggest steel maker, said Tuesday it plans to buy back up to RMB5 billion (USD786 million) worth of shares at a unit price less than RMB5.
The company also said it plans to invest some RMB40 billion to run projects at the production base of Zhanjiang, Guangdong Province to sharpen its edge in steel flat products and corporate competitiveness.
"Both the repurchase and investment news will be a boost to the market sentiment," Zhang Lin, an analyst with Lange Steel, told the Global Times Tuesday. "However, long-term boost of stock market will still depend on stimulating policies of the State to prop up steel demand."
The buyback would be completed in 12 months starting from its approval date, Shanghai-based Baosteel said in a statement filed to the Shanghai Stock Exchange Tuesday.
Since May, Baosteel, the listed unit of China's third largest steel producer by output, has seen its share price slide, pulled down by a bearish stock market and sluggish demand and oversupply in the steel-making sector.
When share prices are undervalued, it is understandable that companies will buy them back if they have enough capital, Zheng Dong, a steel industry analyst at Guosen Securities Co, told the Global Times Tuesday.
Baosteel finished the sale of its unprofitable stainless steel and specialty steel units in April at a price of RMB42.6 billion, according to its earlier financial report.
Another reason behind the repurchase plan, analysts said, is a recent regulation.
The China Securities Regulatory Commission said early this month that companies whose share prices are lower than their net asset value per share (NAVPS) are encouraged to repurchase their own shares, the China Economic Times reported Tuesday.
The report said, by July 31 the share prices of 71 listed companies in the Shanghai and Shenzhen stock markets were lower than their NAVPS.
China's steel industry is plagued by sluggish demand, falling prices and decreasing gross margin currently, largely due to the curbs on the property sector.
The combined profit of the steel industry fell to RMB2.39 billion in the first half of the year and losses by steel makers that were in the red totaled RMB 14.25 billion, according to the China Iron and Steel Association.
According to Baosteel's mid-year financial report released Tuesday, its first-half net profit surged 89 percent year-on-year yet its operating profit during the period slid 60 percent.
"Compared with the performance of other steel makers, Baosteel is not doing badly, but compared with its own performance in previous years, the current results are disappointing," Zhang said.
Baosteel's repurchase move is expected to be followed by more companies. Zheng, however, believed a chain reaction may not occur.
"Whether companies can make repurchase operations depends on their actual operation and capital strength," Zheng said. "Currently in the steel sector, I doubt others can do the same."
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