21st Century Business Herald reporter Yang Ping reported in Shenzhen
A shares reproduce a large volume of “A to A”.
On the evening of July 24, Chinalco (601600.SH) and Yunnan Aluminum Co., Ltd. (000807.SZ) simultaneously disclosed an announcement that Chinalco intends to acquire 19% of Yunnan Aluminum’s shares held by Yunnan Metallurgical in cash through a non-public agreement. Equity, the transaction consideration is regarding 6.662 billion yuan. After the completion of this transaction, Chinalco will hold regarding 29.1% of the shares of Yunlu Aluminum, become the largest shareholder of Yunlu Aluminum, and include Yunlu Aluminum into the company’s consolidated financial statements.
It is worth mentioning that as of the close on July 25, the total market value of Aluminum Corporation of China and Yunnan Aluminum Co., Ltd. were 78.9 billion yuan and 34.1 billion yuan respectively, which means that if the acquisition is successfully completed, the A-share market will usher in 1,100 yuan. The aluminum industry with a market value of 100 million has been consolidated.
With the merger of the two major aluminum industry giants, 2022 will also become a big year for the integration and acquisition of listed companies. According to the incomplete statistics of the 21st Century Business Herald reporter, as of July 25, A-share listed companies have acquired and listed in the first seven months of this year. The company’s cases have exceeded 10. In 2021, there will be 13 new disclosure cases of “A to A”.
The integration of hundreds of billions of aluminum giants
In the context of the reform of state-owned enterprises and the expansion and strength, the merger of Yunnan Aluminum Co., Ltd. and China Aluminum has long been a sign.
According to public information, Chinalco is the world’s largest supplier of alumina, electrolytic aluminum, fine alumina, high-purity aluminum and anodes for aluminum.
In 2021, China Aluminum’s alumina output will be 16.23 million tons and electrolytic aluminum output will be 3.86 million tons. Its alumina production capacity ranks first in the world, high-purity aluminum production capacity ranks first in the world, and primary aluminum production capacity ranks second in the world.
Chinalco’s major shareholder, Chinalco Group Co., Ltd. (hereinfollowing referred to as “Chinalco Group”), is an important state-owned backbone enterprise directly managed by the central government, and it directly holds 29.67% of the shares of Chinalco.
Yunnan Aluminum Co., Ltd. is the largest green and low-carbon aluminum supplier company in China. It has a production capacity of 800,000 tons of anode carbon for aluminum. In 2021, the company will produce 1.367 million tons of alumina, a year-on-year increase of 5.96%. Its current largest shareholder is Yunnan Metallurgy, with a shareholding ratio of 32%.
In 2018, Chinalco started a 100 billion-level integration in Yunnan. Among them, the State-owned Assets Supervision and Administration Commission of Yunnan Province transferred a 51% stake in Yunnan Metallurgy to China Copper, a subsidiary of Chinalco Group, for free. This also means that Chinalco has indirectly won the control of Yunnan Aluminum through China Copper.
At that time, due to the horizontal competition between Yunnan Aluminum and China Aluminum in alumina, electrolytic aluminum and other businesses, China Aluminum Group, the indirect controlling shareholder of Yunnan Aluminum and the direct controlling shareholder of China Aluminum, promised to start planning in 2019. Aluminum Corporation of China and Yunnan Aluminum Co., Ltd. will work on the business integration of horizontal competition, and promise to solve the problem of horizontal competition within five years.
During the period, Chinalco has participated in the fixed increase of Yunnan Aluminum shares twice. First, in December 2019, it subscribed for more than 31 million non-publicly issued shares of Yunnan Aluminum Co., Ltd. at a price of 4.1 yuan per share, with a total transaction price of regarding 12.9 100 million yuan, accounting for 10.04% of the total share capital of Yunnan Aluminum Co., Ltd. following the fixed increase. In 2021, Aluminum Corporation of China will once once more participate in the subscription of the shares of Yunnan Aluminum Co., Ltd., and the shareholding ratio will reach 10.10% following the completion of the fixed increase.
“The relationship between the two companies is very deep. The market has certain expectations for the integration of Aluminum Corporation of China and Yunnan Aluminum Co., Ltd., but this progress is still slightly beyond our expectations, because the original plan is to solve the problem of horizontal competition in 2023. , now it is equivalent to a year earlier.” A senior investor in Shanghai who had invested in Yunnan Aluminum Co., Ltd. pointed out in an interview.
For both listed companies, both parties believe the acquisition will be a win-win situation.
Chalco bluntly stated that this move “is conducive to further solving the problem of horizontal competition between the company and Yunnan Aluminum Co., Ltd., and effectively reducing the company’s daily related transactions; following Yun Aluminum Co., Ltd. is merged into the company, it will help to further enhance the company’s industry status and profitability. Relying on the advantages of Yunnan Aluminum Co., Ltd. in clean energy, it will further increase the proportion of the company’s green aluminum production capacity, which is conducive to promoting the company’s green, low-carbon and high-quality development; at the same time, it can better leverage the business and management synergy between the company and Yunnan Aluminum Co., Ltd. to realize the integration and intensive management of the aluminum industry, and bring sustainable investment returns to the company.
According to the 2021 annual report of Yunnan Aluminum Co., Ltd., the company has formed an annual output of 1.4 million tons of alumina, 3.05 million tons of electrolytic aluminum, 800,000 tons of anode carbon, 1.4 million tons of aluminum alloy, 135,000 tons of aluminum sheet and strip, and 36,000 tons of aluminum foil. Green aluminum integration” complete industrial chain. Using hydropower as energy to produce primary aluminum is a major advantage of Yunnan Aluminum Co., Ltd. The company has achieved 100% use of hydropower energy in the whole process of production; compared with coal-fired aluminum of the same scale, it can reduce carbon dioxide emissions by regarding 25 million tons per year and reduce emissions. The range is more than 90%.
“In recent years, Yunnan Aluminum has performed well, and the company’s acquisition of Yunnan Aluminum’s equity is also conducive to optimizing the company’s financial indicators, enhancing the company’s core competitiveness and value, and meeting the overall interests of the company and its shareholders.” Chalco said.
6.662 billion cash acquisition consideration
According to the plan, Aluminum Corporation of China plans to acquire Yunnan Aluminum shares in cash at a price of 10.11 yuan per share, which is 5.53% higher than the closing price of Yunnan Aluminum shares when the plan was disclosed (the closing price on the evening of July 22), and the entire transaction price is 66.62 billion.
Investors in Yunnan Aluminum seem to be more satisfied with this price. After the release of the plan, on July 25, the share price of Yunlu Aluminum rose by 2.71%, and once exceeded 6% during the session.
However, for Chinalco, some investors are worried that the cash acquisition of Yunnan Aluminum may cause certain cash pressure.
According to the 21st Century Business Herald reporter’s access to the data, it is found that the current cash situation of the Aluminum Industry of China is relatively optimistic. According to the first quarterly report of Aluminum Corporation of China in 2022, as of March 31, 2022, Aluminum Corporation of China had total assets of 196.623 billion yuan and net assets of 58.901 billion yuan. Among them, the monetary funds on the book were as high as 17.961 billion yuan, and the trading financial assets were 5.024 billion yuan.
A person from the Securities Department of Aluminum Corporation of China also told a reporter from the 21st Century Business Herald who called as an investor, “On the one hand, we adopt cash acquisition because our production and operation are relatively stable, including abundant cash flow, on the other hand, it is also to avoid harming the interests of small and medium investors and to avoid additional issuance and dilution of the equity of small and medium investors. Then it can also solve the peer competition with Yunlu Aluminum Co., Ltd.”
Wind data shows that since the beginning of this year, especially since March, due to the impact of the epidemic and changes in the international situation, aluminum prices have been under pressure, and the stock prices of domestic aluminum listed companies have been declining.
The reporter noticed that since 2022, as of July 25, the share price of Aluminum Corporation of China has fallen by 24.32%, and the share price of Yunnan Aluminum has fallen by 10.94%.
“The current aluminum price is in a volatile range, and even the stock prices of related listed companies are relatively sluggish. At present, the price of Yunlu Aluminum has avoided the highest point, and the market value of China Aluminum has also fallen all the way. Cash acquisition is a relatively safe way.” The aforementioned senior investor said.
The medium and long-term trend still needs to be supported by aluminum prices
With the integration of the two major aluminum industry giants, many market participants believe that this move will enhance the competitiveness of China’s aluminum industry, conform to the reform and development strategy of state-owned enterprises, and improve the efficiency of resource allocation.
On the day following the announcement, the share price of Aluminum Corporation of China also rose by 1.77% on July 25, and the intraday increase once exceeded 3%. In the short term, the news of the integration of central enterprises has significantly stimulated the stock prices of the two companies.
However, in the medium and long term, many investors believe that the stock price trend of the two companies is also closely related to the current aluminum price trend. Since the beginning of this year, the continuous fluctuation of aluminum prices has put greater pressure on the stock prices and fundamentals of Aluminum Corporation of China and Yunnan Aluminum.
In the first half of this year, the performance of aluminum prices has experienced ups and downs. At the beginning of the year, due to the continuous fermenting of the geopolitical crisis, coupled with high oil prices and the danger of production cuts by foreign electrolytic aluminum companies, aluminum prices have been rising all the way, and Shanghai aluminum once soared to 24,000 yuan per ton.
However, since March, under the influence of the Federal Reserve’s sharp increase in interest rates and the domestic epidemic, Shanghai aluminum and London aluminum have begun to fall sharply once more. In mid-to-late July, the price of Shanghai aluminum fell below 18,000 yuan/ton.
Zijin Tianfeng Futures stated in its research report on July 19 that more than half of the domestic electrolytic aluminum production capacity has suffered losses, and the aluminum price may fluctuate in the short term to test the cost support of aluminum plants. If the loss cannot limit the release of production, the weak consumption and the start of construction will cause the supply and demand pattern to continue to show excess, and the aluminum price will remain under pressure.
“Mergers and acquisitions integration is only a short-term stimulus. If aluminum prices slump for a while, the stock prices of related listed companies may be suppressed, and the rise will only be short-lived.” said the aforementioned senior investor.
However, some market participants believe that there is limited room for the continued decline of aluminum prices in the short term, and there is certain support.
Wang Xianwei, an analyst at CITIC Construction Investment Futures, believes that the mainstream market expects the Federal Reserve to raise interest rates by 75 BP in June, and commodity prices have been priced in this expectation, and the short-term macro sentiment has stabilized, waiting for the results of the July Fed meeting. From the fundamental point of view, the supply of upstream bauxite continues to be tight, and the cost of electrolytic aluminum is obviously supported. The pressure on the supply side is still being released, but the aluminum factories in a very small number of areas have experienced production reductions due to the impact of high temperature weather, and the market’s worries regarding oversupply have been alleviated to some extent. The demand side is still in the off-season of consumption, but the decline in the downstream operating rate is not obvious. Considering that it is still in the state of destocking, the short-term aluminum price has limited room to fall, and the probability of wide fluctuations is high.
A person from the Securities Department of Aluminum Corporation of China also told reporters: “Aluminum prices are mainly linked to supply and demand, the international situation, and U.S. dollar interest rate hikes, and we can’t predict what the future will be like. However, we believe that it is not only the decline in aluminum prices, but also aluminum prices. The cost of raw materials has also risen to a certain extent, and from the current point of view, the cost side has a certain supporting role for this aluminum price.”
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