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China Hongqiao to Purchase Aluminum Processing Firms in $1.6 Billion Deal

The transactions will help bolster China Hongqiao's expansion beyond primary metal production.

China Hongqiao Group Ltd., the subject of allegations by an anonymous short-seller, said it will spend about $1.6 billion to purchase two aluminum processing firms, bolstering its expansion beyond primary metal production.

The upshot of a series of transactions will see the world’s biggest aluminum smelter take majority control of Loften Environmental Technology Co. Ltd., an aluminum foil producer, according to a statement to the Hong Kong Stock Exchange on Tuesday. In August, Hongqiao had agreed to buy 28% of Loften for about 900 million yuan (US$131 million). It will now boost that stake to 74% at an additional cost of 10 billion yuan.

Loften’s increase in value from August will accrue from its own purchase of aluminum alloy processor Shandong Innovative Metal Technology Co. from Binzhou Hengwang Shareholding Management Corp., in a separate deal worth 7 billion yuan, according to the statement.

The acquisitions “will play a very important role in enhancing the group’s position in the area of aluminum deep processing through industrial integration and also bring positive impact to the group’s production and operation,” Hongqiao said.

Innovative Metal

“Hongqiao has a strategy to focus on expanding its downstream business and this is in line with that strategy,” Wan Ling, aluminum analyst at CRU Group in Beijing, said by phone.

Innovative Metal, based in Zouping, the same northern city as Hongqiao, is China’s biggest producer of aluminum alloy billet, according to its website. Alloy billet can be used to make foil. Hongqiao is the main supplier of liquid aluminum to Innovative Metal, according to a separate e-mailed statement from Hongqiao.

Hongqiao said it’s still preparing an announcement to rebut and clarify anonymous claims made on the Hongqiao Exposed website, which question the firm’s cash flow, debt load, undisclosed related-party transactions and its environmental record. In its initial rejection of the allegations, Hongqiao called the report “one-sided, misleading and speculative.”

The report said readers should assume its author holds a short position in Hongqiao that would benefit from a decline in its securities.

The aluminum firm’s shares fell as much as 2.5% in Hong Kong before trading flat at HK$7.30 by 1.19 p.m. Helped by a rally in metal prices, the stock is 58% higher this year and up 3.4% since Nov. 21., when the anonymous report was published.

On the same day, Loften, whose shares are now suspended, said it planned to make asset purchases of up to 10 billion yuan.

By Bloomberg News

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