China Hongqiao Group to invest $1.6 billion to expand its downstream business

As reported by Reuters, China Hongqiao Group Ltd is said it will invest $1.6 billion to buy two aluminium processing firms in order to expand its operation in the value added segment.

After a series of transactions, the world’s biggest aluminium smelter would own majority stake in the Loften Environmental Technology Co. Ltd., an aluminium foil producer, as confirmed by a statement to the Hong Kong Stock Exchange on Tuesday. Hongqiao already agreed to buy 28% stake of Loften for about $131 million in August 2016. The new deal would raise the stake to 74% at an additional cost of 10 billion yuan.

According to the statement, Loften’s increase in value from August comes from its own purchase of aluminium alloy processor Shandong Innovative Metal Technology Co. and Binzhou Hengwang Shareholding Management Corp., in a separate deal worth 7 billion yuan.

As told by a Hongqiao spokesperson the acquisitions “will play a very important role in enhancing the group’s position in the area of aluminium deep processing through industrial integration and also bring positive impact to the group’s production and operation.”

“Hongqiao has a strategy to focus on expanding its downstream business and this is in line with that strategy,” said Wan Ling, aluminium analyst at CRU Group in Beijing.

Hongqiao is the main supplier of liquid aluminium to Innovative Metal, based in Zouping, the same northern city as Hongqiao, which is the biggest producer of aluminium alloy billet in China.

Notably, recently, some anonymous claims have been made on the Hongqiao’s exposed website, which question the firm’s cash flow, debt load, undisclosed related-party transactions and its environmental record. Hongqiao said the firm is preparing an announcement to rebut and clarify the alleged claims.

The aluminium firm’s shares fell as much as 2.5 % in Hong Kong after the anonymous report was floated. Loften, whose shares are now suspended also announced its plan to make asset purchases of up to 10 billion yuan.

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