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Baoshan Surges by Limit on Share Buyback Plan: Shanghai Mover

Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, surged by the daily limit of 10 percent, the biggest gain in almost four years, after announcing a 5 billion yuan ($786 million) share buyback plan.

Baoshan climbed as much as 0.41 yuan, set for the biggest intraday gain since Sept. 25, 2008, to 4.48 yuan in Shanghai, trading at that level at 10:01 a.m. local time. The Shanghai-based company yesterday said it would buy the shares back at no more than 5 yuan each.

Baoshan’s buyback plan prompted gains by rivals including Wuhan Iron & Steel Co. and Angang Steel Co. Chinese publicly traded companies, especially those whose stock prices are below their book values, have an obligation to buy back shares, the China Securities Journal reported Aug. 2, citing an unidentified official at the China Securities Regulatory Commission.

“Baoshan’s buyback plan involves the purchase up to one-fifth of its tradable shares,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “Investors are likely to vote for the plan.”

A total of 19 Chinese steel stocks trade below their book values, according to data compiled by Bloomberg. Baoshan’s per-share book value was 6.15 yuan, while Angang’s was 6.75 yuan, according to data compiled by Bloomberg.

Baoshan reported yesterday that first-half profit surged 89 percent to 9.61 billion after it sold unprofitable stainless-steel and specialty-steel units to its parent.

Chinese steelmakers posted an aggregate 96 percent drop in first-half profit as the European debt crisis and domestic property curbs sap demand and prices, according to the China Iron and Steel Association. Angang Steel, China’s biggest Hong Kong-traded steelmaker, yesterday posted a net loss of 1.98 billion yuan.

“Baoshan can do this because of its big cash flow,” Jingxi Investment’s Wang said. “It could be difficult for other mills, like Angang, to follow the buyback plan.”

Angang advanced 2.3 percen to 3.63 yuan today in Shenzhen as of 10:53 a.m. local time, Wuhan, the listed unit of China’s fourth-biggest mill, gained 2.8 percent to 2.56 yuan.

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