Citic Group extends US$1.02 billion financial lifeline to world’s largest aluminium smelter

Hongqiao agrees to sell 806.6 million new shares and US$320m of convertible bonds to Citic and the conglomerate’s unit CNCB (Hong Kong) Investment

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Workers ride on an motor rickshaw through an aluminium ingots depot in Wuxi, Jiangsu province in this September 26, 2012 file photo. China's aluminium and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis. Photo: Reuters

Published: 3:43pm, 16 Aug 2017Updated: 11:21pm, 16 Aug 2017

China Hongqiao Group will get an HK$8 billion (US$1.02 billion) financial lifeline from the country’s largest conglomerate Citic Group to repay bank loans, as it borrowed its way to having the world’s biggest installed capacity for producing aluminium.

Hongqiao agreed to sell 806.6 million new shares and US$320 million of convertible bonds to Citic and the conglomerate’s unit CNCB (Hong Kong) Investment, according to a statement to the Hong Kong exchange.

The sale of the new stock and the bonds – if they are fully converted into shares – could give Citic up to 13.3 per cent of Hongqiao, making the conglomerate the smelter’s second-largest shareholder.

The bailout will give Hongqiao much-needed capital to repay bank loans and bolster working capital, the company said.

Hongqiao has the capacity to produce 6.46 million tonnes of aluminium a year, surpassing the Russian giant Rusal in 2015 as the world’s largest smelter. It got to where it is by going on a spate of binge borrowing, funding its expansion through debt, even as the entire industry was beset by excess capacity, or the ability to produce more metal than customers want.

Net debt had surged to 62 billion yuan (US$9.3 billion) at the end of last year, or 137 per cent of Hongqiao’s shareholders’ equity, up from 97 per cent two years earlier.

Amid sagging aluminium prices and citing a “failure to obtain environmental protection approvals before building and operating the facilities”, the environment watchdog agency of Hongqiao’s home base in Zhouping county in Shandong ordered the company to idle half of its production capacity, the South China Morning Post reported last October.