Chalco shares notch moderate gain following asset swap with parent company

Chalco is set to book a HK$1 billion paper gain following an asset swap with its parent company, helping to offset expected losses on the back of weak aluminum prices

PUBLISHED : Monday, 16 November, 2015, 2:29pm
UPDATED : Monday, 16 November, 2015, 5:17pm

Shares of Aluminum Corporation of China, also known as Chalco, bucked the market’s decline after the company announced it had entered into three transactions with its parent that would enable it to book HK$1 billion of gains this year, which would help offset a major loss expected by analysts on the back of weak metal prices and oversupply.

Shares of the nation’s second-largest producer of the lightweight industrial metal gained 0.8 per cent to HK$2.48 in Monday’s trading session, compared to a 1.7 per cent decline of the Hang Seng Index.

Chalco late on Friday said in a statement to the Hong Kong Exchanges & Clearing that it has agreed to make a capital contribution to its parent Chinalco’s financial services unit Chinalco Capital.

It will do so by injecting 150 million yuan of cash and transferring its 15 per cent stake in ABC-CA Fund management – a joint venture with Agricultural Bank of China and Amundi Asset Management set up in 2008.

The stake is valued at 283 million yuan, as appraised by valuation firm ZhongHe.

Chalco and two subsidiaries have also agreed to make capital contributions to its parent’s real estate unit Chinalco Property by injecting 696 million yuan of cash and mainland properties worth 677 million yuan.

Separately, Chalco has agreed to sell 10,800 square feet of office space at the Far East Finance Centre in Admiralty to Chinalco for HK$372 million, the value appraised by Jones Lang LaSalle.

Chalco said the three transactions will result in a combined assets disposal gain of around HK$1.05 billion.

This could help offset Chalco’s projected net loss of 3.5 billion yuan as forecasted by 13 analysts polled by Thomson Reuters.

In the first nine months of this year, Chalco booked a net loss of 2.88 billion yuan.

Laura Zhai, an analyst with ratings agency Fitch Ratings, said Chalco has been shifting its expansion focus from aluminium smelting to the refining of upstream intermediate product alumina. She noted that Chalco is less competitive on smelting compared to private enterprises that have built smelting plants with dedicated self-owned power plants.

“Given falling aluminium prices, Chalco will unlikely be able to turn around its losses in aluminium smelting, but its alumina refining operation has been profitable,” Zhai told the Post.

Aluminium prices have fallen around 17 per cent since the start of the year.

Zhai said Chalco had been running its smelters at less that full capacity, producing about 3 million tones last year, or about 500,000 tones below its full capacity.

Permanent shuttering of high-cost capacity has been slow, since local governments have offered incentives when smelters were loss-making to maintain employment.