Tag Archives: aluminium

China Zhongwang Prices $1 Billion-Plus IPO

Word is that China Zhongwang got $1.3 billion from its initial public offering in Hong Kong. That was less than the $1.6 billion it was looking for, but would still make it the first billion dollar IPO since China South Locomotive & Rolling Stock raised $1.6 billion last August.

The IPO market worldwide has been pretty moribund for all the obvious reasons. China Zhongwang is Asia’s largest maker of extruded aluminum products, which investors see as benefiting from Beijing’s stimulus spending, particularly on new rail lines. Transport-related aluminum products typically have fatter margins than those used in construction. Last year China consumed 39% of the world’s output of extruded aluminum.

The IPO price values the company at just shy of $5 billion, 10 times 2009’s estimated earnings. Trading in the stock is due to start May 8.

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Once Bitten Twice Shy

State-owned China National Offshore Oil Co (CNOOC) ran into a wall of xenophobia that stopped dead its bid for the U.S. oil company Unocal in 2005. With the world even more sensitive to China’s global scavenge for natural resources, state-owned Aluminum Corporation of China (Chinalco) is seeking to preempt similar objections to its investment in Australia’s Rio Tinto.

Chinalco has taken a 9% stake in Rio in partnership with Alcoa of the U.S. Rio is trying to fend off the $140 billion takeover interest of fellow Australian miner BHP Billiton, prompting speculation that Chinalco might make a bid or be positioning itself to buy Rio’s aluminum assets, notably Alcan. A 15% stake would trigger a review under Australia’s inward foreign investment rules. BHP has to make a formal bid Wednesday or walk away for six months under takeover rules.

Though still shy of that, Chinalco has voluntarily submitted itself to an informal review. Australia Prime Minister Kevin Rudd and Foreign Minister Stephen Smith met Foreign Minister Yang Jiechi and Natural Resources Minister Martin Ferguson met Chinalco president Xiao Yaqing in Canberra this morning to discuss the investment.

Any deal that leaves a state-controlled foreign company controlling significant Australian natural resources would potentially put Australia in a delicate position with one of its leading trade partners. The government has been dancing around the question of whether either a bigger Chinalco stake or a full bid would fall foul of national-interest provisions of the foreign investment rules.

In 2001 John Howard’s government blocked Royal Dutch Shell’s planned $9.1 billion takeover of Woodside Petroleum, the Australian oil and gas group, on just such grounds.

Meanwhile, on a much smaller scale Sinosteel looks set to by Australia’s iron-ore miner Midwest Corporation for $1.1 billion, now Murchison Metals, the Australia-listed mining group backed by Mitsubishi of Japan has abandoned its bid. Sinosteel has made a highly conditional offer for Midwest but has yet to make a formal bid despite building a 20% stake.

One final thought: if Chinalco does end up buying Alcan off a merged BHP-Rio, that will likely trigger national-interest reviews from the Canadian and French governments. More delicate dancing to come.

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Rattling The Can

Already nervous about the proposed $100 billion-plus merger between two natural resources giants, BHP Billiton and Rio Tinto, China, one of the world’s biggest consumers of the iron ore, aluminum and other minerals that BHP and Rio Tinto dig up, has jumped in with both feet.

Aluminum Corp. of China (Chinalco) and the U.S.’s Alcoa staged a joint dawn raid on Friday to grab 9% of Rio Tinto, paying $14 billion for the stake, a 21% premium on the closing price of Rio Tinto’s shares the previous evening. The purchase is one of the largest overseas investments by a Chinese company and comes just days before a Feb. 6 deadline for BHP to table a formal bid or walk away.

Question is, is this a defensive move in case a BHP bid for Rio Tinto goes ahead, a spoiler, or an offensive move in the event any bid lapses or fails or if Rio Tinto looks for a white knight. Short of a full takeover, Chinalco could simply be trying to put itself in a strong position to negotiate for Rio’s aluminum assets if BHP does buy Rio.

That, indeed, may be its endgame (and explain Alcoa’s presence). For now, though, Chinalco and Alcoa are keeping all options open.

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