China's Top Aluminum Maker Aims to Raise $490 Million With Stock

  • Hongqiao founder Zhang Shiping to underwrite rights offer
  • Equity boost to help shore up finances amid rising debt

China Hongqiao Group. Ltd., the world’s biggest maker of aluminum, will raise nearly half a billion dollars from a rights offer underwritten by its founder, highlighting the difficulties of producers amid five-year-low commodities prices. The company’s shares fell in Hong Kong.

The Shandong province, China-based company aims to bring in HK$3.84 billion ($490 million) by offering seven shares for every 50 held by shareholders, the company said in a statement to the Hong Kong stock exchange after close of trading on Jan. 8. Chairman and founder Zhang Shiping, who has pledged to underwrite 99 percent of the issue, holds more than 78 percent of Hongqiao through a holding company, according to the statement.

“Strategically the raising will address working capital needs and highlights the challenging environment of aluminum markets at current prices,” analyst Daniel Kang at JPMorgan Chase & Co. said in a note on Monday. “While the parent’s role may provide some confidence to the market, it could reduce the company’s free-float further."

Many metals producers are cutting capacity and trying to reduce debt as commodities prices continue a slide that started in 2011. Hongqiao said last month it would reduce capacity while other top Chinese producers agreed to halt capacity increases. Elsewhere around the globe, Alcoa Inc., the biggest U.S. maker of the lightweighting metal, said last week it will close its smelter in Indiana state, leaving it with just one operating U.S smelter.

Proceeds from the rights offer will help Hongqiao “strengthen its financial position" with 20 percent going to repay loans, the statement said. The company’s total debt-to-equity ratio rose to 133 percent in the first half of 2015, compared with 112 percent the first half the year before, according to data compiled by Bloomberg.

Aluminum prices have fallen to nearly half of their post-crisis peak in 2011 as China produces too much and demand has weakened. In Shanghai, the metal has dropped about 18 percent from a year ago while the Bloomberg World Mining Index sank to its lowest since 2004 on Monday. The metal rose 0.7 percent Monday.

Hongqiao fell as much as 2.6 percent on Monday in Hong Kong trading to HK$4.20 a share.

The company was the world’s biggest producer of the metal used in everything from beverage cans to cars in the first half of last year, surpassing Russia’s United Co. Rusal. Hongqiao’s net income rose 33% on year to 2.72 billion yuan in the first half of 2015.

The controlling stake of the founder’s holding company will rise to 81.13 percent if no other shareholders subscribe to the rights issue, the statement said.

— With assistance by Martin Ritchie

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