Caixin
Jun 13, 2018 07:20 PM
BUSINESS & TECH

Education Group Buys Xinjiang Aluminum Firm for $3.6 Billion

An education company owned by a prestigious Beijing university may seem an unlikely buyer for an aluminum smelter in China’s western Xinjiang Uygur autonomous region, but the government’s crackdown on polluters may be forcing the aluminum industry to get creative.

Shenzhen-listed Xiamen Unigroup Xue Co. Ltd., disclosed (link in Chinese) it will pay around 23.6 billion yuan ($3.7 billion) for 100% of the shares of Xinjiang Production & Construction Corp. Nongbashi Tianshan Aluminium Co. Ltd., or Tianshan Aluminium, in what is likely a backdoor means for the smelter to gain a public listing, an analyst told Caixin.

The purchase will be paid in cash and by issuing shares, according to the disclosure, which did not give a time frame or rationale for the move. However, documents disclosed on the Shenzhen Stock Exchange last month said that current Tianshan Aluminium investors will obtain a large number of shares in the company after the sale.

The move appears to be an effort to get Xiamen Unigroup listed without going through the process of an initial public offering. In an effort to cut excess aluminum capacity, regulators have made it harder for private companies to take the direct route to a public listing.

China is the world’s largest producer of aluminum, but the industry’s environmental costs and overcapacity have become a major concern for Beijing. “The government considers aluminum production one of the ‘three high’ industries: highly polluting, and consuming high amounts of water and power,” explained Du Juntang, an analyst with consultancy Luzheng Futures. “Putting aluminum companies on the market is not easy.”

The country’s aluminum exports rose to their highest levels in over three years last month, data from China’s General Administration of Customs show, largely on the back of a rise in global prices following U.S. sanctions against Russian producer Rusal.

But Chinese banks are reluctant to lend to China’s private aluminum companies, anticipating that they will bear the brunt of the government’s efforts to curb pollution, Du said.

Xiamen Unigroup shares are currently suspended as the company undergoes a restructuring that will likely see it spin off its other assets and become a direct vehicle for Tianshan Aluminium to list on the Shenzhen exchange. Documents disclosed (link in Chinese) on the same day show that it is planning to transfer 99% of its equity in Xiamen Xinde Real Estate Development Co. Ltd., possibly to another Tsinghua-related entity. While discussions are ongoing, the disclosure said that the Ministry of Education will remain the ultimate controller.

There have also been rumors that Henan-based smelter Yidian Holding Group Co. Ltd. may attempt to list in a similar fashion through a deal with its Shenzhen-listed nominal rival, JiaoZuo WanFang Aluminum Manufacturing Co. Ltd. Chinese media reports have speculated on whether Yidian Chairman Huo Bin is the same Huo Bin whom the JiaoZuo board unanimously made its chairman last month.

Du highlighted the confusing case as another example of how the squeeze on funding for private smelters is leading to strange developments in the aluminum industry.

Contact reporter Ke Dawei (davidkirton@caixin.com)

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