Carlyle-Backed Chengde Steel Explores Options

HONG KONG, May 28 (Reuters) – Yangzhou Chengde Steel Tube Co Ltd, 49 percent owned by U.S. private equity giant Carlyle Group [CYL.UL], has hired Lehman Brothers (LEH.N: Quote, Profile, Research) to help it seek strategic options, according to sources with direct knowledge of the matter.

Yangzhou Chengde Steel is considering a range of options, the sources said, which could include an initial public offering, a strategic partnership, or bringing in an outside investor or buyer.

Carlyle bought its stake from the privately held Chinese steel company for $100 million in March 2007.

Lehman Brothers and Carlyle declined to comment, while a Chengde Steel official could not immediately be reached.

The decision to hire an external adviser comes as Chinese steel companies look to expand amid heavy demand, rising prices, and an expected consolidation among China's large, state-run steel groups. Steel prices globally are up more than 50 percent so far this year.

Business for the Yangzhou-based company is booming, sources say, thanks to ravenous consumption of steel products in coastal areas of China.

The company makes seamless pipes and supplies them to the energy, power, industrial, chemical and construction sectors — industries in high demand from Asia's economic growth. 

“The price for steel tubes has been increasing since last year,” said Helen Lau, steel analyst at Daiwa Securities in Shanghai, adding that the tubes are in particularly strong demand from the petrochemical industry.

According to the company's Web site, Chengde's chairman Zhang Huaide visited the United States last September to look into developing international sales and setting up a U.S. office and to consult with Carlyle on a listing process.

As of March 2007, Yangzhou Chengde Steel had annual production capacity of 200,000 tonnes of large tubes. It was spun off from its parent, privately held Jiangsu Chengde Steel Tube Co., in December 2006.

(Reporting by Michael Flaherty and Tom Miles, Editing by Tony Munroe)