China Hongqiao Group Ltd. is reported to be planning to spend US$1.6 billion on a purchase of two aluminium processing firms. The deal, which was announced yesterday, will have the controversial firm taking charge of Loften Environmental Technology Co. Ltd., giving it a foot in the door to the value-added aluminium sector.
According to the announcement, on Monday Shandong Hongtuo, which is a wholly-owned subsidiary of Hongqiao, purchased 63.41% of Loften’s shares for US$131 million. Also on Monday Binzhou Hengwang agreed to sell all of its stock in aluminium alloy processor Shandong Innovative Metal Technology Co. to Loften. The end result has Hongqiao owning 73.72% of Loften’s shares, with Loften now owning Shandong Innovative Metal Technology Co.
Hongqiao says it expects the deal “will play a very important role in enhancing the group’s position in the area of aluminum deep processing through industrial integration and also bring positive impact to the group’s production and operation,” per the statement.
Innovative Metal is the largest producer of aluminium alloy billet in the People’s Republic of China. According to a separate statement given to the press, Hongqiao is Innovative Metal’s principal supplier of liquid aluminium. Both firms are based in Zouping, Shandong Province.
According to market experts, the purchase in question is in line with Hongqiao’s overarching market strategy.
“Hongqiao has a strategy to focus on expanding its downstream business and this is in line with that strategy,” explained CRU Group’s aluminium analyst Wang Ling to Bloomberg News.
The statement also said that Hongqiao is still preparing a rebuttal to revelations by anonymous short sellers that the firm has allegedly been involved in various questionable financial transactions and environmental misdeeds. However, the firm continues to maintain that the allegations are “one-sided, misleading and speculative.”
Hongqiao is also fending off a spate of alleged violations of environmental regulations, the news of which recently came to light. Up to half of the firm’s smelting capacity is at risk of closure due to these alleged infractions.