Strategy

Alcoa Gets China Payback

Sells $2b stake in Aluminum Co. of China Ltd. after sharp rise in share price, but vows to stay involved in the industry there.
Roy HarrisSeptember 12, 2007

Alcoa Inc. sold its holding in Aluminum Corp. of China Ltd. (Chalco) for about $2 billion as part of a plan to redeploy its Asian assets, capitalizing on a rapid rise in the value of Chalco shares since its 2001 initial public offering.

The Pittsburgh-based aluminum giant, which was outbid earlier this year for Canada’s Alcan, portrayed the sale of Chalco shares by its Alcoa International (Asia) Ltd. unit as a mere reordering of Alcoa’s Chinese investments. “Our commitment to China and the opportunities there has never been stronger,” Alcoa chairman and CEO Alain Belda said. He added that because Chalco has established itself on the equity market, “our role as a financial investor is no longer needed, and we can redeploy our capital into other value-adding options, including projects in China.”

Since starting a Beijing office in 1993, Alcoa has established 17 operating locations in China, making products for a wide range of markets. Its involvement included taking a 7-percent initial stake in the Chalco IPO. “We normally do not act as financial investors, but we participated in the Chalco IPO 6 years ago to help facilitate its entry into the capital markets,” Belda said. He added, “As a major player in the Chinese aluminum industry, we look forward to continuing to work with our partners and Chalco to help the industry realize its great potential.”

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A Bloomberg News report, however, noted that the shares Alcoa sold have risen nearly 15-fold since the IPO, nearly tripling in value this year alone. Alcoa’s original plan involved selling 700 million shares of Chalco with an option to increase the sale to its entire 884.2 million-share stake, the news service said, citing a term sheet emailed to investors.

Aluminum prices have fallen sharply in recent months with a rise in inventories globally. That has reflected the U.S. credit crunch and its impact on demand for the metal, which has major markets in construction, transportation, and packaging. Bloomberg quoted Liu Yang, managing director in Hong Kong for Atlantis Investment Management Ltd., as saying: “Alcoa is taking profit from Chalco shares, and the sale indicates that it is concerned about the commodities cycle, after the credit crunch in the U.S.”

Alcoa’s profit from the sale of Chalco shares was more than $1 billion, according to Bloomberg.