Aluminum Corp. of China Ltd., the nation’s biggest producer of the lightweight metal, said it will sell about 8.18 billion yuan ($1.3 billion) of assets, including production plants, mainly to its parent.
The Beijing-based company, called Chalco, also plans to sell $1 billion of perpetual bonds overseas and will eliminate the position of chief executive officer, with the chairman and president taking over those functions, according to Hong Kong and Shanghai stock exchange filings yesterday.
Chalco has posted net losses for six straight quarters, according to data compiled by Bloomberg, including a 975 million-yuan loss in the three months through March 31. The company is unlikely to deliver an operational turnaround amid weak metal prices and cost challenges, Barclays Plc analysts led by Ephrem Ravi said in March.
“This is a strategic move to trim losses,” said Helen Lau, a Hong Kong-based analyst with UOB Kay Hian Ltd. “It’s a sign that Chalco is shifting focus to improve efficiency of its existing aluminum assets from pursuing asset expansion into other sectors.”
Chalco gained 5.9 percent, the most since Jan. 10, to HK$3.24 at the close in Hong Kong today. The benchmark Hang Seng Index rose 0.5 percent. Chalco’s Shanghai-traded shares climbed 1.7 percent to 4.09 yuan.
The company plans to sell alumina assets of its Guizhou branch, valued at 4.43 billion yuan, to parent Aluminum Corporation of China, or Chinalco, because the Guiyang city government changed the classification of the plant’s district to commercial from industrial, according to a company filing.
Chalco said it will build a new alumina production line, which will have “certain cost advantages” and Chinalco can develop the site of the Guizhou plant.
The company said in a separate filing that it also plans to sell the assets of its aluminum fabrication unit in northwest China, valued at 1.66 billion yuan, to Chinalco.
Chalco will offer stakes in eight more aluminum fabrication units on the China Beijing Equity Exchange, it said in another statement and Chinalco has informed the company that it plans to bid. The asset value from those units attributable to the company is 2.09 billion yuan, Chalco said.
The sale of stakes in its aluminum-fabrication units will “optimize the asset structure, lower the debt-to-asset ratio and improve the debt portfolio of the company,” according to Chalco’s filings. This will enable the “company to focus on the development of quality resources” and products higher up the value chain.
Completion of the asset transaction will reduce Chalco’s pretax loss by 3 billion yuan in 2013, Credit Suisse Group AG analysts Trina Chen and Owen Liang said in a note today, while upgrading their rating on the stock to outperform from neutral.
Aluminum fabricating had a negative gross margin of 2.83 percent, the worst among its four business sectors, according to Chalco’s 2012 earnings report, released in March. Its alumina business had a negative margin of 1.93 percent, primary aluminum earned a margin of 0.57 percent and trading 1.13 percent.
Former Chief Executive Officer Xiong Weiping, who remains Chalco’s chairman, announced a plan in August 2010 to diversify into rare earths, coal and iron ore to reduce dependence on high-cost aluminum smelting. The company in September dropped a C$925 million ($926 million) takeover bid for Vancouver-based SouthGobi Resources Ltd., which mines coking coal in Mongolia, deferring diversification plans as profit margin shrank.
Chalco paid $1.35 billion for a stake in Rio Tinto Group’s Simandou iron ore project in Guinea in July 2010, its first investment in the steelmaking raw material.
Chalco’s asset restructuring plan this year may also include the transfer of the Simandou project back to its parent, the Credit Suisse report said.
“This diversification strategy should be redefined to focus on fixing the aluminum business,” Vanessa Lau, an analyst at Sanford C. Bernstein & Co., said in an April 23 report. “For example, in achieving higher bauxite self-sufficiency.” Other “fundamental restructuring” includes optimizing assets, reducing energy costs and focusing on value-added production, she said in the note.
Aluminum prices in London have dropped 8.6 percent this year amid an industry glut. The metal was little changed at $1,890 a ton as of 11:39 a.m. Shanghai time today.
Chalco, which swung to a loss of 8.23 billion yuan last year, is set to report annual losses until at least 2015, according to forecasts of analysts surveyed by Bloomberg.
Three consecutive years of losses could lead to delisting of the stock from the Shanghai stock exchange, Sanford C. Bernstein’s Lau said in the report.