Singapore 22/09/2016 - The share trading halts of Chinalco Mining Corp International (CMCI) and Chinese aluminium extruder, Xingfa Aluminium Holdings, on the Hong Kong stock exchange have extended into a week, sparking speculation that CMCI's parent company Chinalco could be taking over Xingfa.
In separate announcements on September 15, both companies said their shares are halting trading from the day pending the release of announcements related to takeovers and mergers. Both companies’ shares remain suspended as at Thursday.
Market watchers had initially thought the trading halts could be coincidental as they reasoned that both companies - given their business natures - were unlikely to merge or take over one another.
CMCI operates the Toromocho copper mine in Peru and has continued to state in its financial reports that it acts as the core platform of Chinalco for future acquisition of nonferrous and non-aluminium mineral resources and projects outside China.
Xingfa, on the other hand, is a Foshan-based aluminium extruder in southern Guangdong province who sold around 290,000 tonnes of construction and industrial aluminium profiles last year.
But the trading halts are beginning to seem related as both companies’ shares have concurrently stayed suspended for a week, sparking speculation in the market that Chinalco could be embarking on a takeover for Xingfa Aluminium, hence the trading halt by CMCI.
Chinalco has also said this year that it aims to lift its aluminium fabricating capacity as it seeks to balance its upstream and downstream production chain.
Industry participants reckoned Chinalco’s possible takeover of Xingfa could be part of Beijing’s reform of its state-owned firms - the state-owned Chinalco holds an 85-percent stake in CMCI while the Guangdong provincial government has a 30-percent stake in Xingfa as at end-December.
In what was one of the largest merger in China’s metals industry driven by Beijing, China Minmetals Corp had absorbed China Metallurgical Group (MCC) late last year.
Beijing’s overhaul of its state-owned enterprises (SOEs) aims to raise efficiency and improve profitability in these companies and particularly in the metals and steel industry, to also reduce overcapacity.
Chinese SOEs have long been criticised in the market for their inefficiency as provincial governments which have stakes in such companies – despite oversupply in some sectors - often continue to keep production high so as to meet output targets, maintain provincial revenues and keep locals employed.
But the Chinese central government wants to move away from this mode of operation as it seeks to transform its economy by decreasing its reliance on metal-heavy infrastructure investment and become more service- and consumer-oriented - this evident from its restructuring of the domestic steel industry and allowing debt-ridden SOE Guangxi Nonferrous Metal Group to go bust.
Meanwhile, the shares of Chinalco's other Hong Kong-listed affiliate, Chalco, continues to trade on the exchange. Chinalco is the largest shareholder of Chalco with a 33-percent stake in the aluminium producer.