Chalco in 5b yuan bond issue to fund growth

PUBLISHED : Tuesday, 13 February, 2007, 12:00am
UPDATED : Tuesday, 13 February, 2007, 12:00am

Alumina producer says third debt deal in 3 years provides cheaper financing

Aluminum Corp of China (Chalco), the world's second-largest alumina producer, plans to raise as much as five billion yuan by selling long-term corporate bonds to fund its aluminum refining and smelting capacity expansion.

This will be Chalco's third bond sale in three years after a two billion yuan sale in 2005 and a five billion yuan deal last year, both of which had one-year maturity and interest rates of 3.33 per cent and 3.53 per cent.

Chalco said that long-term bonds with more than one-year maturity could 'provide the company with a lower financing cost'. It did not specify the maturity and the interest rate.

State-owned firms have been selling more bonds to cut funding costs as interest rates on this type of debt tend to be lower than bank loans with a similar maturity.

According to the China Government Securities Depository Trust & Clearing's website, 19 state-owned enterprises under the direct control of the State-owned Assets Supervision and Administration Commission issued 65.2 billion yuan of long-term bonds with maturity from five to 30 years last year.

Those fixed-rate bonds had coupon rates ranging from 3.76 to 4.2 per cent, compared with 2.28 to 4.75 per cent for those with maturity of one year or less.

Chalco said it would seek shareholder approval for the sale at a meeting on February 27.

The company plans to set aside 60 billion yuan for capital spending between 2006 and 2010 to expand production capacity.

It aims to increase its annual capacity for alumina, the base ingredient of aluminium, to 13 million to 14 million tonnes by 2010 from 8.3 million tonnes in 2005, and more than triple its annual aluminium smelting capacity to five million tonnes from 1.5 million tonnes in 2005. It produced about 32 per cent more alumina at 9.5 million tonnes last year while aluminium volume had almost doubled to two million tonnes.

Analysts said Chalco needed to raise funds to support its aggressive capacity expansion plan as it could not raise any fresh money from its planned A-share listing.

Chalco in December offered as much as 8.16 billion yuan worth of A shares to buy out the shares it did not own in two Shanghai-listed companies - Shandong Aluminium Industry and Lanzhou Aluminium.

After the takeover, the two units will be delisted and Chalco's A shares will list in Shanghai instead, which is expected as early as next month.

Meanwhile, the mainland's exports of unwrought aluminium dropped 40 per cent to 54,025 tonnes last month from January last year as the government raised export taxes for the metal to encourage the manufacture of higher-value products, the customs office said on its website yesterday.

The mainland last year increased export taxes on primary aluminium to 15 per cent from 5 per cent.