Alcoa Selling Entire Chalco Stake for Up to $2 Billion


Alcoa said Wednesday it sold its stake in Aluminum Corp. of China (Chalco) for about $2 billion, a $1.8 billion gain on an investment that had yielded no real cooperation on the ground.

Alcoa , the world's largest aluminium maker, said it had bought the stake six years ago as a financial investment and that its role as an investor was no longer needed by the now-established Chinese company.

Alcoa said in a statement it would continue to invest in China's aluminum industry and to work with Chalco, China's top alumina and aluminium producer. Alcoa has 17 operating locations in China and is expanding its Bohai rolling mill in Qinghuangdao.

Alcoa bought into Chalco, the world's third-largest producer of alumina, in 2001 in an initial public offering at HK$1.37 per share, forming a strategic alliance.

It sold its entire stake, which represented about 7 percent of the company in June, for HK$17.34 per share, putting its profit at HK$15.97 per share, or about US$1.8 billion overall.

The selling price represents a discount of 15 percent against the stock's closing price of HK$20.40 in Hong Kong on Wednesday.

Alcoa shares fell 30 cents, or less than 1 percent, to $33.91 in afternoon trading on the New York Stock Exchange. The number of shares sold was at the top of a range of 700 million to 884.2 million shares that had been targeted for sale, according to a term sheet obtained by Reuters, but at the low end of a price range of HK$17.26 to HK$18.27.

Goldman Sachs handled the deal.

Trading and smelter sources in China also said Chalco planned to cut its spot alumina price by about 10 percent to 3,500 yuan a tonne from Thursday. Analysts had said it might need to cut prices to match its rivals, after China began importing aluminium for the first time in two years.

"(The stake) didn't have any impact on sales or cooperation with Chalco," said Eva Yip at Sun Hung Kai Financial. "Although Chalco has leadership in the Chinese market, it has to serve the domestic market and cannot export," Yip said. "The key share price catalyst is the A-share differential. In relation to other aluminium stocks in our commodity universe, Chalco is very expensive."

Chalco's Shanghai-listed A shares closed at 49.12 yuan on Wednesday, 2-1/2 times the Hong Kong price.

Nothing Ventured

Alcoa and Chalco agreed in 2001 to set up an equal-stake joint venture to operate the Chinese company's wholly owned Pingguo plant in the Guangxi region of southern China.

There have been no signs, however, of the venture being formed, said an executive at the Pingguo plant who asked not to be identified.

"Alcoa's staff have not come here for a long time," the executive said. He said an Alcoa project manager, a frequent visitor in previous years, had not been to Pingguo for a year or two.

Industry sources in China have noted that Pingguo owns one of the best bauxite reserves in the country, making it China's most efficient alumina producer.

Chalco is trying to boost its reserves of bauxite, the ore refined into alumina, both in China and overseas. Chalco shares have nearly tripled this year, easily outpacing a 40 percent gain over the same period in the index of Chinese companies listed in Hong Kong.

"This is a change in the strategic partnership. When Chalco did its placement last year, Alcoa didn't subscribe to maintain its stake. That was an early signal," said Helen Wang, an analyst at DBS in Beijing.

"Maybe short term we will see some share pullback, but any pullback will present a buying opportunity," she added.