China Zhongwang Bids to Improve Valuation With Shanghai Listing

  • Company addresses undervaluation in Hong Kong: Guotai Junan
  • Aluminum firm was target of short-seller attack last year

Aluminum-maker China Zhongwang Holdings Ltd. said it will spin off its industrial extrusion business and list in Shanghai, as it bids to improve its valuation among investors.

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 its extrusion unit into CRED Holding, Hong Kong-traded China Zhongwang will achieve a listing in Shanghai, it said.

The proposed transactions value the extrusion 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.

“All the valuations of metals companies are very low in the Hong Kong market, so it’s very hard to raise new proceeds there,” Kevin Guo, analyst at Guotai Junan International Holdings, said by phone from Shenzhen. “The company wants to raise the valuation of its main assets, which are mainly in aluminum extrusions.”

To help fund the extrusion business, CRED Holding plans a private placement of shares to raise as much as 5 billion yuan. In a move related to the transaction, China Zhongwang’s chairman, Liu Zhongtian, will relinquish his presidency of the firm that he founded and be replaced by another executive, Lu Changqing. The change has been made “for the purpose of improving and optimizing the corporate governance of the company,” according to a separate statement.

In a third statement, new president Lu called the deal “an important step to unlocking the intrinsic value ‎of China Zhongwang.”

China Zhongwang’s stock rose 4.9 percent before wiping out the gains to trade 5.3 percent lower at HK$4.08 a share by 12:09 a.m.

China Zhongwang was the subject of claims last year by a previously unknown group 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. Zhongwang denied the allegations and noted Dupre has a short position in its stock.

The Liaoning-based company reported an 18 percent increase in first-half net profit in August and is due to report full-year earnings next month.

Before it's here, it's on the Bloomberg Terminal.