Wanfang Aluminum Likely to Acquire Affiliate

Jiaozuo Wanfang Aluminum Manufacturing Co., Ltd. (SZSE: 000612) suspended trading on July 28, 2008, and most insiders forecasted that the domestic aluminum producer would likely make a buyout of its affiliate Jiaozuo AES Wanfang Power Co., Ltd. 

Previously, the Shenzhen-listed company was rumored to be regrouped by its majority shareholder Aluminum Corp. of China Ltd. (Chalco, SHSE: 601600, SEHK: 2600, and NYSE: ACH), but actually, the aluminum mogul is not capable of buying up its sole listed arm now.

So the direct reason for Wanfang Aluminum's trading suspension should be ascribed to an affiliated transaction, said analysts.

Wanfang Aluminum said in its 2007 annual report that it had completed the purchase of a 30% stake in AES Wanfang Power from the latter's Chinese shareholder, and aggregately spent CNY 318.827 million buying nearly 1.025 billion kilowatt-hours of electricity from the newcome subsidiary during the report period.

AES Wanfang Power gained net profits of CNY 95.561 million or so in the entire 2007, and contributed an about CNY 24.73 investment income to Wanfang Aluminum.

Although it is so necessary for Wanfang Aluminum to invest about CNY 500 million in the buyout of AES Wanfang Power, but some analysts expressed their worries about completion of the deal. That is because both parties have faced much cost and cash flow pressure, chiefly owing to escalating coal prices and tight monetary policy in the first half of 2008.

From January to March 2008, the aluminum producer separately reaped net profits and earnings per share (EPS) of around CNY 223.56 million and CNY 0.466, hiking 31.95% and 32.01% from a year earlier. In contrast, its return on equity (ROE) tumbled 1.97 percentage points to 11.94%.

Total assets of Wanfang Aluminum had topped CNY 3.93 billion by December 31, 2007, with a 14.83% rise. Meanwhile, the firm had seen it net assets per share grow 13.55% year on year to CNY 3.901.

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