(Recasts, adds China venture, share buyback)
By Yoo Choonsik
SEOUL, July 22 (Reuters) - South Korea's POSCO , the world's third-largest steel maker, unveiled plans on Tuesday to return $269 million in cash to shareholders and invest in a new venture that aims to profit from a car-building boom in China.
POSCO reported a tripling of second-quarter profits earlier this month and predicted annual earnings would beat market forecasts as Chinese economic growth boosted steel prices.
South Korea's largest steel maker said it would spend 236.03 billion won ($200.3 million) to buy back 1.82 million, or two percent, of its shares and cancel them, effectively returning cash to shareholders and boosting earnings for each remaining share. It would return a further 81.65 billion won to shareholders by doubling its interim dividend to 1,000 won per share, the company said.
POSCO shares closed 4,000 won or 3.1 percent higher at 134,000 won, outperforming the broad market's 0.9 percent gain.
Elsewhere, POSCO said it would raise $438.6 million from the sale of about a third of its 6.8 percent stake in SK Telecom Co Ltd through a yen-denominated bond issue convertible into SK Telecom shares. It said it would use the proceeds to repay debt.
FURTHER BOOST TO SHARES
Analysts said the capital returns and Chinese expansion would further boost POSCO's shares, which have risen 47.3 percent since hitting a one-and-a-half year low in mid-March.
This compares with a 43 percent rise in the shares of the world's largest steel maker, Arcelor , which tripled profit in the first quarter. Nippon Steel Co , the second largest steel maker, has seen its shares rise 20 percent as it has reported two years of losses after a costly restructuring.
"All these plans are positive for its stock price, especially the share buy-back plan and the China investment deal," said Moon Jeong-up, an analyst at Daishin Economic Research Institute.
"China is such a fast growing market that it is sometimes referred to as a black hole in the industry," he added, referring to the steel being sucked into China.
China is the world's fastest growing consumer of steel. Its car industry, one of the main customers for steel makers, produced twice as many vehicles in the first half of this year as it did a year earlier and is on track to produce two million vehicles this year.
COLD ROLLED STEEL FOR CARS
POSCO said it would buy a 10 percent stake in a $231.9 million joint venture with China's Benxi Iron and Steel (Group) Co to produce 1.8 million tonnes of cold-rolled steel plates per year in China. Most of the steel plates will be used to make panels for cars. POSCO said it might buy another five percent in the future.
"Its China investment plan is the right direction to go as other foreign companies had already taken the lead," said Moon.
The announcement came hours after China's Baoshan Iron and Steel Co and Nippon Steel Corp said they would set up a 3 billion yuan ($360 million) venture to make steel for China's car industry.
POSCO said the investment would help the company secure a stable supply of cold-rolled coils for use by its affiliates in China and better prepare itself for the growth in demand for higher-grade steel products in China.
POSCO has so far invested a combined $288.2 million in setting up and operating 13 affiliates in China and now expects to have combined capacity there of 1.05 million tonnes of products per year by 2005. ($1=118.55 yen, 8.276 yuan, 1178.4 won)