EAU Steel gets first batch of capital fund

Taipei, Nov. 14, 2003 (CENS)--The East Asia Union Steel Corp. (EAU Steel), a joint venture between Taiwan's China Steel Corp. (CSC) and Japan's Sumitomo Metal Industries Ltd., has recently received the first capital fund of 13.5 billion Japanese yen to facilitate its establishment.

The establishment of EAU Steel is touted as the first transnational cooperation project between two integrated steel manufacturers. CSC chairman Lin Wen-yuan has flown to Japan to participate in the inauguration ceremony of the joint-venture company.

In mid-July this year, CSC and Sumitomo Metal announced they would jointly offer 30.3 billion Japanese yen to form the EAU Steel in four stages by the end of April 2005. Sumitomo Metal will hold a 62.05% stake by investing 18.8 billion Japanese yen in EAU Steel, CSC will invest 10 billion Japanese yen to hold a 33% stake in the new company, and Sumitomo Trading Corp., an affiliate of Sumitomo Metal, will invest 1.5 billion Japanese yen for the remaining 4.95% share. CSC holds one of the five seats on the board of directors of EAU Steel. The cooperation project calls for Sumitomo Metal to spin off its affiliate Upspream Company (UPCO) as an independent company named Sumitomo Metal & Steel Co.

EAU will use the first capital fund of 13.5 billion Japanese yen to procure the stakes of Sumitomo Metal & Steel Co., which is capitalized at 30 billion Japanese yen and records total assets of 90 billion Japanese yen.

According to a contract between CSC and Sumitomo Steel, EAU Steel will supply at least 1.8 million steel billets per year to CSC and its affiliate Yieh Loong Steel Corp. The supply of steel billets is expected to help resolve the shortfall of raw materials faced by steel firms in Taiwan.

Yieh Long, which specializes in the production of hot-rolled and cold-rolled steel pipes, uses two million to 2.4 million metric tons of steel billets per year. About 600,000 metric tons of the billets are supplied by CSC and the remainder is imported from Japan, mainland China, Russia and other countries.

This is the second cooperative venture between CSC and a well-known Japanese steel firm. The Taiwan steel maker previously allied with Maruichi Steel Tube Ltd. CSC said that the cooperation with the two Japanese firms would help stabilize the domestic iron and steel market, which has been volatile over the past several months.

To avoid potential foreign exchange risks rising from transnational investments, CSC has decided to acquire loans from domestic and foreign banking institutions. To that end, CSC recently has offered an open bid for the first batch of the loans of 4.4 billion Japanese yen. Taiwan Cooperative Bank won the bid by beating out other eight contenders. The bank will offer the loans to CSC sometime in November at an annual interest rate of 0.22%.

Taiwan Cooperative Bank said the interest rate for the 4.4 billion Japanese yen loan is set at the average level of the Japanese financial market, which has seen lending rate close to zero. The loan will mature in seven years, but CSC can repay the loan four years after it obtains the loan.

CSC said it would hold another open bid between April and May 2004 for the remaining loans of 5.6 billion Japanese yen to finance the entire investment project in Japan.