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Nippon Steel Mulls Capital Tie with Baosteel

Officials of Nippon Steel Corp. met with the chairwoman of Baosteel Group Corp. as the Japanese company considers a cross-shareholding deal with China's largest steel maker, the Nihon Keizai newspaper reported on Saturday.

Baosteel Chairwoman Xie Qihua proposed the arrangement to executives at Nippon Steel, Japan's largest steel producer, at a meeting on Friday. The chairwoman was on a visit to Japan.

Nippon Steel officials told the chairwoman that any deal was dependent on Baosteel listing its shares on an overseas stock exchange and the two steel makers strengthening their business ties, the Nihon Keizai said.

Officials at Nippon Steel were not immediately available for comment.

In October, Nippon Steel and South Korea's POSCO Co. agreed to raise their stakes in each other to help cope with a wave of consolidation in the steel industry following Mittal Steel's $31 billion acquisition of rival Arcelor.

But investing in Baosteel would mark a strategic shift by Nippon Steel. In an interview with Reuters in September, Nippon Steel President Akio Mimura said, "No", when asked if there was a possibility of cross-shareholdings with Baosteel.

As part of any capital alliance, Nippon Steel would consider bolstering its existing joint venture with Baosteel in China for automotive steel as well as co-investment in raw materials interests. Cross-shareholding would likely be limited to stakes of a few percent in each other.

The Nihon Keizai earlier this week quoted Xie Qihua as showing interest in a cross-sharheholding alliance with both Nippon Steel and POSCO once it lists overseas, though analysts in China have said that listing would not happen anytime soon.

Nippon Steel has been boosting business ties and cross-shareholdings among its allies to create a web of interests and narrow a gap with the newly created Arcelor Mittal, which is about three times bigger than Nippon Steel.

In addition to the deal with POSCO, Nippon Steel has also agreed to buy a 1.7% voting stake in Brazilian steel maker Usiminas while tightening its capital and business ties with its smaller Japanese allies Sumitomo Metal Industries Ltd. and Kobe Steel Ltd.