Portal courting steel trader in bid to boost volume

By Eric Ng and Pamela Leung, SCMP
2000/08/31

iSteelAsia.com is in talks to buy a stake in British-based traditional steel trader Stemcor, a move that will help boost trading volume of the steel exchange portal.

The online firm has entered a non-legally binding head of terms on the proposed transaction, which chief operating officer Drina Yue said would help the portal secure logistics and payment partners for transactions involving European and North American parties.

Growth Enterprise Market-listed iSteelAsia provides an online trading platform for steel buyers and sellers. Its parent steel trader and processor Van Shung Cheong Holdings is focused on the local and mainland markets.

While terms of the transactions have not been decided, it is envisaged Stemcor would grant iSteelAsia a put option - the right to sell the stake back to Stemcor.

Stemcor also plans to give iSteelAsia a separate option to buy additional interest in the 49 year-old steel trader.

It is expected Stemcor will guarantee a minimum steel-trading tonnage to iSteelAsia and intends to place a "significant portion" of its trading volume through the portal "after a certain period of time".

Stemcor made a net profit of HK$20.31 million last year on turnover of 4.39 million tones of steel worth HK$9.09 billion.

It lost HK$40 million in 1998 on turnover of 3.53 million tones worth HK$8.77 billion.

The bulk of Stemcor's trading is done in five trading centers, but it has offices in 24 countries.

The companies are hoping to enter a formal agreement before the end of the year.

An Internet analyst at a European-based brokerage said iSTeelAsia's proposed move was typical of the present trend of dotcom companies acquiring stakes in traditional firms as the mixed business model is perceived to be more sustainable in the long term.

"One concern though, is whether the acquisition would turn off its existing customers," the analyst said.

"iSteelAsia.com was supposed to be a neutral exchange."

Ms Yue dismissed the concern by emphasizing Stemcor was itself an independent trader linking a large number of buyers and sellers.

Announcement of the acquisition plan did not help iSteelAsia's share price, which fell 5.3 per cent yesterday to 53 HK cents.

iSteelAsia warned investors due diligence results and prevailing market conditions would affect the directors' decision to proceed with the deal.

Separately, iSteelAsia has recruited United States-based shipping and logistics firm iLink Global to provide online services to traders using the steel exchange later this year.

The services include quotation, shipping information and shipment management and tracking.

Ms Yue expects up to 30 percent of the firm's customers to use the service.