(Yicai Global) April 24 -- Jiangsu Shagang Group, China's largest private steelmaker, has filed a lawsuit against a subsidiary of Fosun International in a dispute over the sale of a stake in Nanjing Iron and Steel United.

Shagang claims that Fosun failed to honor a framework agreement, but Fosun International, the parent company of Fosun Industrial Investment, issued a statement on April 21 saying that the agreement had expired.

Last October, Shanghai-based Fosun International announced that it intended to sell 60 percent of Nanjing Iron & Steel United to Shagang for as much as CNY16 billion (USD2.3 billion).

In March this year, the two parties formally signed the transfer agreement, replacing the investment framework deal signed in October, and decided on a price of CNY13.58 billion (USD2 billion).

According to Fosun’s announcement on April 21, the two parties also agreed on pre-emptive rights, saying that if Nanjing Iron and Steel Group, another shareholder of Nanjing Iron and Steel United, exercised its right of first refusal, Fosun could unilaterally terminate the equity transfer agreement with Shagang.

In a previous deal, Citic Pacific Special Steel Group, the world’s largest specialist steelmaker, had injected CNY13.6 billion into Nanjing Iron and Steel Group, becoming its controlling shareholder. On April 2, Nanjing Iron and Steel Group announced its decision to exercise its pre-emptive right.

Fosun International said that it had fully refunded the principal and interest to Shagang on April 4, and that the framework agreement had expired.

According to Tianyancha data, Nanjing Iron and Steel Group owns 40 percent of Nanjing Iron and Steel United, and Fosun International owns 60 percent through its subsidiaries.

Nanjing Iron and Steel United, set up in 1958, has innovation, product research and development capabilities, as well as sound management, Wu Wenzhang, chairman on independent information provider SteelHome, told Yicai Global. The CNY13.58 billion price tag is more cost-effective than building a new steel mill, making it a tempting target for other domestic steel mills such as Shagang, he said.

Editor: Tom Litting