Mittal Steel, the world's largest steel group, today dramatically increased its global reach by becoming the first foreign company to take a stake in a state-owned Chinese steelmaker.

The steel giant, which was formed last year through the multi-billion-dollar merger of Ispat International and LNM Holdings, said it had signed an agreement to acquire a 37.17 per cent stake in Hunan Valin Steel Tube & Wire for $314 million (£168m).

The Hunan Valin deal is expected to boost the Chinese company's competitiveness and could lead to a new era in world steel production. China is already the world's largest producer, producing 222.3 million tons steel last year, according to figures from the China Iron and Steel Association.

Mittal Steel is controlled by Lakshimi Mittal, the London-based tycoon who is worth an estimated £9 billion and who is believed to have spent a record £57 million last year on a Kensington home. The company will have around 70 million tons of steelmaking capacity when it completes its $4.5 billion acquisition of the US-based International Steel Group this year.

Under the terms of the Chinese agreement, Mittal Steel, which is listed in the Netherlands and based in the UK, will buy 656.25 million "legal person shares" owned by the Chinese company's parent Valin Group. Legal person shares are usually not traded on the stockmarket.

"Strategically this is a key acquisition for Mittal Steel Co, as it provides us with our first production platform in the world's fastest growing steel market," Mr Mittal, Mittal Steel's chairman and chief executive, said in a statement.

"Valin is one of China's leading steelmakers and we are confident that we can help the company expand further by providing our marketing, procurement and technological knowledge and expertise," Mr Mittal said.

Mittal Steel is already building a $100 million steel plant in the northeast China port city of Yingkou, in the Liaoning province.

Hunan Valin chairman Li Xiaowei said the deal will boost the Chinese company's competitiveness and help it break into the overseas market.

"The cooperation will enable Mittal Steel Co and Valin Group to cooperate in technology and to share global resources, which will be critical for the company to enter the international steel industry," Mr Li said.

After the transaction, Mittal Steel and Valin Group will each hold a 37.7 per cent stake in Hunan Valin. Mittal Steel will be able to participate in management and to nominate board members.

The transaction is subject to approval from China's regulators.

The deal is also subject to Mittal Steel successfully applying to the China Securities Regulatory Commission for a waiver from making a general offer to all shareholders of Hunan Valin.

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