A consortium led by South Korean steelmaker POSCO (005490.KS) and Taiwan-listed China Steel Corp. is acquiring a 15 percent stake in ArcelorMittal (ISPA.AS) Mines Canada Inc for $1.1 billion, China Steel has said.
The move comes as ArcelorMittal battles the sluggish steel demand and endeavors to offload assets to curtail debt.
China Steel, Taiwan's biggest steelmaker, would take a 3.68 percent stake of the unit that had two iron ore mines valued at $270 million, Steve Lee, China Steel executive vice president, told Reuters Wednesday.
Posco, South Korea's largest steelmaker, is yet to divulge the details regarding the stake it will buy and how much it will invest. Reportedly, a stock purchase agreement has been signed to acquire stake in the iron ore mine operator.
Earlier, a source familiar with the developments told Bloomberg that ArcelorMittal was considering selling about 30 percent of its Canadian iron ore unit as it seeks to reduce debts amid the slumping steel-industry earnings.
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Apparently, Posco, China Steel and ArcelorMittal Mines Canada would own Labrador Trough iron ore mining and infrastructure asset through a joint venture and enter into a long-term iron ore supply agreement, China Steel said in a statement on its website.
South Korean wire service Yonhap Infomax reported Wednesday that China Steel and Posco would jointly contribute $540 million and financial investors, including the National Pension Service, would pay the remaining amount.
ArcelorMittal is a top exporter of iron ore to steel market around the world and its operations account for 40 percent of Canada's iron ore output.
According to a statement on the China Steel website, the transaction is subject to various closing conditions, including regulatory clearance by the Taiwanese government, and is expected to close in two installments in the first and second quarters of 2013.
The stake acquisition is seen as strengthening China Steel toward its goal of meeting 30 percent of iron ore and coal needs from mines it has investments in by 2015. The investment is likely to raise China Steel's iron ore feedstock self-sufficiency ratio by 4.2 percent to 11.6 percent, Bloomberg has stated.
Earlier, Standard and Poor's cut ArcelorMittal debt rating to BB+from BBB- and reaffirmed the outlook as negative. Previously, Moody's also downgraded ArcelorMittal rating to Ba1, in addition to announcing a negative outlook.
Commenting on the deal, Vanessa Lau, a senior analyst at Sanford C. Bernstein & Co. in Hong Kong, told Bloomberg: "Upstream integration is going to be a key trend. If you look at the steel companies and their performance to date, it’s very difficult to improve bottom line earnings if you do not have a low enough iron ore input cost."