Zhongwang Says Deal to Deliver Shanghai Listing Will Help Growth

Updated on
  • Company posts 13 percent increase in full-year net income
  • Shares slump even as margins boosted by drop in aluminum

China Zhongwang Holdings Ltd., the country’s biggest maker of extruded aluminum, posted a 13 percent increase in full-year net profit, and said the proposed spinoff of a subsidiary and the parent’s listing in Shanghai would improve financing and growth prospects.

The deal involves an asset swap with a Shanghai-listed Chinese property company, whereby China Zhongwang will sell Liaoning Zhongwang Group Co. to CRED Holding Co. for 28.2 billion yuan ($4.3 billion), and in return receive majority control of the Beijing-based realtor, according to a statement Wednesday. By injecting the unit into CRED Holding, Hong Kong-traded China Zhongwang will achieve the Shanghai listing and a better valuation for its stock, it said.

The Liaoning-based company, which on Wednesday also named a new president, sells semi-processed aluminum used in everything from office blocks to power plants. As a buyer of primary aluminum, the company profits from processing margins rather than outright moves in the price of the metal, which has fallen 13 percent in Shanghai in the past year.

“The spinoff listing is good for the company’s long-term growth and shareholder benefits,” Tang Yanjie, director of international business development, said at a briefing in Hong Kong Thursday, adding that trading in Shanghai will give the company “a new financing platform.” New President Lu Changqing told the briefing that the revaluation of assets would also benefit existing investors in Hong Kong.

Stock Slumps

China Zhongwang’s stock in Hong Kong had earlier closed 7.5 percent lower at HK$4.07, its biggest loss since August when the company was under fire from a short seller.

Net income was 2.80 billion yuan, from 2.48 billion yuan a year earlier, as margins expanded amid the slump in aluminum prices and plants operated at full capacity, according to a statement Thursday. Revenue rose 1.3 percent to 16.2 billion. Its profit in the second half was 1.31 billion yuan, an increase of about 8 percent on the year-ago period, according to a calculation by Bloomberg.

The company’s aluminum extrusion business posted a gross margin of 30 percent, compared with 25.4 percent in 2014, according to its statement.

The proposed transaction with CRED Holding values the subsidiary at 41.7 billion yuan, more than double the entire company’s Hong Kong market capitalization when converted to the Chinese currency. That figure includes a planned dividend of 13.5 billion yuan payable by Liaoning Zhongwang to a unit of its parent.

M&A Hopes

The aluminum-maker last year refuted claims by a previously unknown research group and short-seller called Dupre Analytics, which published a report alleging, among other things, that the company used parties related to its founder to defraud investors and fabricate revenue. China Zhongwang has also been the subject of allegations it has violated U.S. anti-dumping rules, which it has denied.

Lu said at the briefing he had spent several months last year viewing suitable acquisitions in North America and Europe in the hope of acquiring a similar company that can expand its client base. According to Lu, Thursday’s share slump was due to investors’ concerns over the U.S. allegations, even though “it has almost zero impact on us,” he said.

China’s aluminum demand is again expected to lag supply this year, although the nation’s output expansion is slowing, consultant Beijing Antaike Information Development Co. said earlier this month.

— With assistance by Martin Ritchie

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