(Yicai Global) April 20 -- Fosun International’s sale of its stake in Nanjing Iron & Steel United to Citic Pacific Special Steel Group has hit a setback as Jiangsu Shagang Group, China’s biggest private steelmaker, threatened to take legal action against Fosun after the conglomerate walked away from a prior deal to sell the equity to Shagang.

Shagang denies that the equity transfer deal signed with Fosun was terminated, has asked Fosun to fulfill the agreement, and may take the issue to court, a source familiar with the matter told Yicai Global.

Fosun said on Oct. 19 that it had signed a framework agreement with Jiangsu province-based Shagang to sell its stake in Nanjing Iron & Steel for about CNY16 billion. On March 14, the seller agreed to lower the price because it had received dividends of CNY1.8 billion (USD261.5 million) from Nanjing Iron & Steel.

But then Citic Pacific Special Steel, the world’s largest specialist steelmaker, injected CNY13.6 billion into Nanjing Iron & Steel shareholder Nanjing Iron & Steel Group through its unit Hubei Xinyegang Steel, which now owns 55.3 percent of the group, Nanjing Iron & Steel, a Shanghai-listed arm of Nanjing Iron & Steel United, said on April 2.

Nanjing Iron & Steel Group then exercised its right of first refusal and acquired the 60 percent of Nanjing Iron & Steel United that it did not already own from Fosun for CNY13.6 billion, Shanghai-based Fosun announced on the same day.

Shagang believes that Nanjing Iron & Steel Group’s acquisition of Nanjing Iron & Steel United looks like Nanjing Iron & Steel Group exercised its preemptive right, but it was actually third-party Citic Pacific Special Steel, the source told Yicai Global.

Shagang may seek a court ruling on whether the introduction of a new controlling shareholder to exercise the preemptive right was legal and if the conditions offered by the new buyer were on equal terms with Shagang’s, the person said. 

Nanjing Iron & Steel United has a leading international production line for medium-thick plates but also produces other kinds of steel. Its steel production reached 9.8 million tons last year, with an output target of 10.6 million tons this year, according to data from Nanjing Iron & Steel.

Editor: Futura Costaglione