(Yicai) Dec. 11 -- Baoshan Iron and Steel, the listed arm of the world’s largest iron and steel maker China Baowu Steel Group, plans to invest CNY10.7 billion (USD1.5 billion) to become the second-largest shareholder of Shandong Steel Rizhao to enhance its influence in northern China’s steel market and gain stable returns.

Baosteel will acquire a 48.6 percent stake in Shandong Steel Rizhao from Shandong Iron and Steel Group, the Shanghai-based buyer announced on Dec. 8. Shandong Iron and Steel, the state-owned firm under the Shandong provincial government which controls Shandong Iron and Steel Group, will remaining the largest shareholder of Shandong Steel Rizhao with a 50.6 percent stake.

Shandong Steel Rizhao operates Shandong Iron and Steel’s production base in Rizhao, a prefecture-level city in China’s eastern Shandong province. The base has an annual output of 7.9 million tons of various kinds of steel, such as cold and hot rolled steel and medium-thick steel plates, according to the firm’s website.

The deal is expected to enhance Shandong Steel Rizhao’s product competitiveness and Baosteel’s customer service capabilities in northern China and create a synergy between Shandong Steel Rizhao’s and Baosteel’s businesses, the latter said.

Shandong Steel Rizhao achieved a revenue of CNY26.3 billion and a net profit of CNY528 million (USD73.4 million) in the first three quarters of the year, Baosteel noted.

The transaction is likely a stage result of the joint reorganization work that China Baowu Steel Group and Shandong Iron and Steel Group have been promoting since 2021. Baowu is China’s largest steelmaker, with a crude steel output of 131 million tons last year, while Shandong Iron and Steel Group is the country’s seventh-largest steel company, with a crude steel output of 29.4 million tons last year.

Baosteel’s stock [SHA: 600019] closed up 0.98 percent at CNY6.17 (86 US cents) in Shanghai today after down near 4 percent in morning session. Shares of Shandong Iron and Steel [SHA: 600022] ended up 0.71 percent at CNY1.42( 20 US cents).

Editor: Futura Costaglione