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Nippon Steel, Sumitomo, Kobe Steel agree on capital tie-up.

TOKYO, Nov. 9 Kyodo

Nippon Steel Corp., Sumitomo Metal Industries Ltd. and Kobe Steel Ltd. have agreed in principle to form a capital tie-up that would reorganize Japan's steel industry into two groups, sources familiar with the deal said Saturday.

The three steelmakers are expected to announce the agreement as early as next week, the sources said.

The capital alliance follows the Sept. 27 creation of JFE Holdings Inc., a holding company that puts NKK Corp. and Kawasaki Steel Corp. under its umbrella and has led to the consolidation of the two steelmakers' facilities.

Under the agreement, Nippon Steel will take a bigger stake in the two other companies than the two other companies will have in Nippon Steel, although talks are still under way on how much stake each company will have each other, the sources said.

The Asahi Shimbun reported in its Saturday morning edition that Nippon Steel will take a stake of some 3% in Sumitomo Metal and a stake of some 2% in Kobe Steel.

The newspaper said Nippon Steel and Sumitomo Metal will have each other's shares worth 5 billion yen, and Nippon Steel and Kobe will purchase each other's shares worth 3 billion yen.

Sumitomo Metal and Kobe Steel will have each other's shares worth 3 billion yen, it said.

The Nihon Keizai Shimbun said in its Saturday morning edition that Nippon Steel, Sumitomo Metal and Kobe Steel will each put up about 4 billion yen to take a share of 0.5% to 2.5% in the others.

The business daily said the alliance will include the mutual supply of products and consolidation of production resources.

Nippon Steel, Japan's biggest steelmaker, has business tie-up agreements separately with Sumitomo Metal and Kobe Steel, but Sumitomo Metal and Kobe Steel have no such partnership.

Sumitomo Metal, faced with about 1.6 trillion yen in interest-bearing debts, reportedly plans to raise 50 billion yen through the issuance of new shares to Sumitomo Mitsui Banking Corp., Sumitomo Corp. and other Sumitomo group companies.

The Nihon Keizai Shimbun said Nippon Steel and Kobe Steel will begin producing hot-rolled coil for Sumitomo Metal as early as next year, as Sumitomo Metal mothballs aging facilities for the product at its Wakayama mill.

Sumitomo Metal is also considering transferring the first stage of the steelmaking process at the Wakyama mill to a joint venture to be formed with Taiwan's China Steel Corp., according to the sources.

The Wakayama plant has been losing competitiveness because its facilities used in the second stage of steel-making have become old.
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Publication:Japan Weekly Monitor
Date:Nov 11, 2002
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