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Yalian Steel Announces Support Agreement for Friendly Insider Bid

VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 12/28/12 -- Yalian Steel Corporation (TSX VENTURE:YL) announces that it has entered into a support agreement (the "Support Agreement") with 0957703 B.C. Ltd. (the "Offeror"). The Offeror is a company wholly-owned by Mr. Xin Duo Yu ("Mr. Yu"), Yalian's chairman of the board, who holds 14.74% of the issued and outstanding common shares in the capital of Yalian. Pursuant to the terms of the Support Agreement, the Offeror has agreed to offer to acquire all of the outstanding common shares of Yalian which the Offeror (and its associates and affiliates including Mr. Yu) does not already own (the "Offer"). The purchase price under the Offer is $0.40 per share (the "Offer Price").

The Offeror has also entered into a collateral shareholders' agreement (the "Collateral Agreement") concurrently with the execution of the Support Agreement with certain other shareholders (the "Supporting Shareholders") of Yalian who collectively hold approximately 72.67% of the issued and outstanding share capital of Yalian.

Pursuant to the terms of the Collateral Agreement, the Supporting Shareholders have: (i) agreed not to tender their shares to the Offer; (ii) agreed if required, to act jointly and in concert with the Offeror in connection with a second stage compulsory acquisition from all remaining shareholders of Yalian other than the Offeror (and its associates and affiliates including Mr. Yu) and the Supporting Shareholders; (iii) agreed and acknowledged that Yalian is facing a significant debt load with interest expense outstripping a significant portion of earnings and Yalian will likely be required to carry out one or more equity financings following the completion of the Offer and any subsequent second stage compulsory acquisition transaction; and (iv) agreed and acknowledged that if they do not participate in such equity financings they will suffer a dilution to their equity interest in Yalian and a potential loss of some or all of the value of their Yalian shares.

Pursuant to the terms of the Collateral Agreement, the Offeror will agree not to acquire the Yalian shares of the Supporting Shareholders through the Offer and any subsequent second stage compulsory acquisition transaction, and will provide, to the extent of the Offeror's ability, the Supporting Shareholders with the right to participate in any future equity financings following the completion of the Offer and any subsequent second stage compulsory acquisition transaction, such that each Supporting Shareholder will be able to maintain their percentage equity interest in Yalian.

Pursuant to the terms of the Support Agreement, the existing options granted by Yalian pursuant to its existing stock option plan are subject to exercise prices in excess of the Offer and, accordingly, the Offeror and Yalian intend that Yalian either terminate, accept the surrender of, cancel or allow the expiry of any outstanding options prior to the date that the Offeror first takes up Yalian shares pursuant to the Offer.

The Offer, when made, will constitute an "insider bid" within the meaning of Multilateral Instrument 61-101 - Protection of Minority Shareholders in Special Transactions of the Canadian Securities Administrators ("MI61-101") and the parties have agreed to comply in all respects with MI6-101 in connection with the Offer. In this regard, a Special Committee of the board of directors of Yalian, consisting of Mr. Jack Austin, Ms. Joanne Yan and Mr. Mao Sun, has received a valuation and fairness opinion, prepared in compliance with the applicable provisions of MI61-101, from investment banking firm, Evans & Evans, Inc. of Vancouver, to the effect that, although the offering price is below their initial valuation of Yalian, they consider the Offer fair, from a financial point of view, to the minority shareholders of Yalian, particularly in view of events subsequent to the date of the valuation.

In their valuation of Yalian, Evans & Evans ascribed a value range of $40.7 to $42.2 million ($0.42 to $0.43 per share) to Yalian and its business, on a going concern basis, as at November 30, 2012. However, since the date of the valuation, Evans & Evans have indicated in their fairness opinion that:


--  Yalian has received no new orders and, accordingly, the risk of reaching
    their September 30, 2013 revenue and earnings targets has increased.
    Further, given the significant fixed costs Yalian faces, the lack of
    orders increases the potential loss in the current fiscal year, which
    negatively impacts Yalian's value. 
--  Yalian's average trading price declined by approximately 20% and the 30-
    day volume weighted closing price declined by 29% and as Evans & Evans
    did factor Yalian's trading price in their valuation, the decline in
    trading price also negatively impacts Yalian's value. 
--  Yalian's trading volumes have continued to decline. By December 28,
    2012, the number of Yalian shares traded in the previous 180 trading
    days had declined to 433,100 (equal to approximately 0.4% of the Yalian
    shares outstanding). This contraction in liquidity also negatively
    impacts Yalian's value. 
--  On December 28, 2012 the Company repaid an outstanding loan of
    approximately $4.0 million (RMB25 million) at maturity. Management of
    Yalian is currently in negotiations to renew the loan, but has not yet
    received bank approval. Given Yalian's working capital position, if it
    is not successful in securing the replacement loan, Yalian's financial
    stability will be impacted.

Furthermore, Evans & Evans indicated that there are also qualitative factors that should be noted in their fairness opinion, including:


--  The fair market value of Yalian shares as determined in their valuation
    of $0.42 to $0.43 per share is very close to the cash to be received in
    exchange for the Yalian shares at the offer price. 
--  The trading price of the Yalian shares and the financial results of
    Yalian have continued to decline since the date of the valuation and,
    accordingly, the overall value of Yalian would have declined in that
    same period. 
--  The lack of liquidity and low volume of trading in Yalian shares over
    the past several months brings with it a risk to Yalian shareholders in
    realizing the value per share on the open market. 
--  The Offer is on par with the 90 day volume weighted closing trading
    price and it is at a premium of over 24% to the 10 day and 30 day volume
    weighted closing trading price. 
--  Yalian's shares closed above $0.40 per share 130 days in the 180 days
    prior to December 28, 2012, with only 112,500 shares (equal to
    approximately 0.1% of the Yalian shares outstanding) being traded.
    Therefore, the ability of Yalian shareholders to receive greater than
    $0.40 in the market is limited given trading volumes over the 180 days
    preceding December 28, 2012. 
--  Yalian has a significant debt load and there can be no assurances that
    Yalian will be able to renew and service such levels of debt to fund
    future operations. 
--  Yalian's revenues are project-based in nature and there are long sales
    cycles and, as such, there is uncertainty as to whether or not Yalian
    will be able to generate sustainable, positive earnings.

Evans & Evans considered each of the factors enumerated above, which contribute to overall fairness that shareholders may consider in responding to the Offer.

The selection of Evans & Evans, Inc. as valuator was made by the Special Committee. The board of directors of Yalian, upon consultation with its financial and legal advisors and following receipt of a recommendation of the Special Committee, has (with the exception of Mr. Yu and Ms. Xia Xu who is a Supporting Shareholder, each of whom have abstained from voting) unanimously accepted the Special Committee's recommendation and determined that the Offer is fair, from a financial point of view, to the shareholders of Yalian and is in the best interests of Yalian and the shareholders of Yalian. Accordingly, the board has unanimously approved the Support Agreement and the recommendation that shareholders of Yalian (other than Offeror and its associates and affiliates including Mr. Yu) accept the Offer.

Concurrently with the execution of the Support Agreement, the directors and officers of Yalian entered into lock-up agreements with the Offeror pursuant to which they have agreed to deposit all Yalian shares under the Offer. The locked up shareholders own, in the aggregate 2,957,500 Yalian shares, representing approximately 3.0% of the Yalian shares on a fully diluted basis.

The Offer will be made in the form of a take-over bid. The Support Agreement also contains customary non-solicitation covenants and Yalian has reserved the right to respond to superior proposals if certain conditions are met, subject to the Offeror's right to match any such superior proposal.

The Offer will be subject to customary conditions. The full and important details of the Offer will be included in the formal offer and takeover bid circular, which is expected to be mailed to shareholders in the next 10 days, together with a directors' circular which will set out the board of director's unanimous recommendations that shareholders accept the Offer. Once mailed, the take-over bid circular and the directors' circular will be available on SEDAR at www.sedar.com.

About the Offeror

0957703 B.C. Ltd. is a newly incorporated British Columbia corporation that is wholly-owned by Mr. Xin Duo Yu and was incorporated for the purposes of being the bid vehicle in the Offer.

About Mr. Yu

Mr. Xin Duo Yu is a director and the chairman of the board of Yalian Steel Corporation and the owner of (together with associates and affiliates) of 14.74% of the issued and outstanding share capital of Yalian Steel Corporation. Mr. Yu is a successful entrepreneur with extensive experience in building businesses in China. He is the founder, Chief Executive Officer and a director of Hanfeng Evergreen Inc., a China-based, TSX listed company. Under his leadership, Hanfeng has grown from a small nursery and landscaping company into China's largest producer of slow and controller release fertilizers with domestic production facilities in four provinces and new facilities being constructed in Indonesia. His understanding of both the China business landscape and the Canadian capital markets has established Hanfeng as one of the most respected China-based, TSX listed companies. Mr. Yu has lent his expertise to other successful China - based TSX issuers such as Hanwei Energy Services, a growing manufacturer of high qualitly products for China's oil and gas, coal, and wind power industries, where he served as a founding director from November 2005 to May 2008. Prior to his business career, Mr. Yu was a government official.

About Yalian

Yalian Steel Corporation is a British Columbia corporation focused on the production of high quality Longitudinally Submerged Arc Welded (LSAW) steel pipe to service Asia's rapidly growing energy transportation infrastructure market. Yalian has recently completed construction of its initial manufacturing facility in city of Yangzhou, in the Jiangsu province of China. Yalian's production line has a rated capacity of up to 200,000 metric tons per year, depending on product and mix specifications. The Yangzhou Yalian plant utilizes the JCOE (J- ing, C-ing, O-ing, Expanding) process, an advanced method of LSAW pipe production that involves the bending and shaping of X-70 and higher grade steel. Yalian's Yangzhou plant also has an anti-corrosion line to provide external and internal 3PE, 3PP, FBE/DFBE coating service with annual capacity of 2,500,000 square meters for external coating products and 2,000,000 square meters for internal coating products.

This press release contains forward-looking statements which reflect the Corporation's current expectations regarding future events. The forward-looking statements involve risks and uncertainties. Actual results could differ materially from those projected herein. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

For further company information please access our website: www.yaliansteel.com

This news release contains forward-looking information and forward-looking statements (collectively "forward looking statements"), within the meaning of applicable securities laws, with respect to the ability of the Company to secure additional loans and other financings, the completion of the anti-corrosion line and the Company's ability to execute its business plan. Such forward looking statements are based upon assumptions, and estimates made by management in light of its experience, current conditions and its expectations of future developments as well as other factors which it believes to be reasonable and relevant. These assumptions include those concerning the availability of financing and no significant decline in existing general business and economic conditions. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied in the forward looking statements and, accordingly, readers should not place undue reliance on those statements. Risks and uncertainties that may cause actual results to vary include, but are not limited to, the Company's limited financial resources and the availability of financing alternatives; changes in general economic conditions or conditions in the financial market; that the Company will be able to establish and/or maintain relationships with key suppliers, customers and strategic partners; and that the construction of the new anti-corrosion coating line will be completed in a timely manner and on budget as well as other risks and uncertainties which are more fully described in the Company's Management's Discussion and Analysis for the 2010 fiscal year and in other Company filings with securities and regulatory authorities which are available at www.sedar.com. Should one or more risks and uncertainties materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward looking statements and accordingly, readers should not place undue reliance on those statements. Readers are cautioned that the foregoing lists of risks, uncertainties, assumptions and other factors are not exhaustive. The forward looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements contained herein or in any other documents filed with securities regulatory authorities, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contacts:
Yalian Steel Corporation
Helen Lu
Chief Financial Officer
(604) 696-6388
www.yaliansteel.com

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