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China Aluminum's 10 Billion Debt-to-Equity Swap will close: or a sample of deleveraging by central enterprises

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2019-01-17
After half a year of gestation, the market-oriented debt-to-equity swap scheme of China Aluminum (601600.SH) has finally taken a substantial second step.
On July 31, Chinalco announced the draft report on asset purchase and related party transactions by issuing shares on the A-share listed platform of Chinalco.
According to the report, China Aluminum intends to issue about 2.119 billion shares in a targeted way, and buy back the shares of four subsidiaries such as China Rongruitong, China Life, Zhaoping Investment and China Xinda at a transaction price of 12.713 billion. The price of the new directional issuance is 90% of the average price of 60 trading days before the announcement, which is 6 yuan per share. After the completion of the transaction, the four subsidiaries will once again become 100% owned subsidiaries of China Aluminum.
Prior to the increase, the above eight institutions held 25.67% equity in Baotou Aluminum, 30.80% equity in Shandong, 81.14% equity in Chinalco Mining and 36.90% equity in Zhongzhou Aluminum.
Relevant personages of the Chinalco Secretariat Office disclosed to the 21st Century Economic Reporter that the acquisition of the remaining shares of the four subsidiaries was actually the second substantial step for Chinalco to implement market-oriented debt-to-equity swap as the first example of non-ferrous central enterprises. "After the acquisition is completed, Chinalco will regain 100% of the shares of four important subsidiaries, and the debt ratio of Chinalco and its four subsidiaries will decrease significantly. "
Market-oriented debt-to-equity swap takes the second step
In fact, since last year, economic reports in the 21st century have been focusing on large-scale debt-to-equity swaps in China's aluminium industry. This newspaper reported on December 5 last year that China Aluminum Industry intends to introduce eight investment institutions to increase the capital of the four wholly-owned subsidiaries by 12.6 billion yuan and implement market-oriented debt-to-equity swap through direct equity swap of creditor's rights and cash capital increase.
According to an insider of China Aluminum Group, Baotou Aluminum, China Aluminum Shandong, China Aluminum Mining and Zhongzhou Aluminum are not only the important subsidiaries of China Aluminum, but also the old state-owned enterprises of alumina and electrolytic aluminium production. In the context of the state's call for the implementation of "three go, one fall and one subsidy", China Aluminum decided to carry out market-oriented debt-to-equity swaps for the four subsidiaries to help enterprises achieve debt reduction and load reduction.
According to the appraisal report provided by China Unionwealth Assets, after the 12.6 billion market-oriented debt-to-equity swap landed, the asset-liability ratio of four subsidiaries declined sharply. Among them, the asset-liability ratio of Chinalco Shandong dropped from 56.1% to about 29.01%, Zhongzhou Aluminum Industry from 56.54% to about 25.99%, Baotou Aluminum Industry from 70.05% to about 53.92%, and Chinalco Mining Industry from 90.95% to about 25.9%.
China Aluminum also disclosed to 21st century economic reporters that as the leader of the aluminium industry, China Aluminum will realize the magnificent turn of "de-leveraging" through the debt-to-equity swap. Its asset-liability ratio will be reduced from 72% to 66%, and the annual financial cost will be saved by 600 million yuan.
It is worth mentioning that after the completion of the transaction, the proportion of shares held by eight institutions such as Huarong Ruitong in China Aluminum Industry ranges from 0.2% to 4.94%. The shares will be locked in from December to 36 months from the end of the issuance of shares. However, the control rights of listed companies have not changed. The largest shareholder is still Chinalco Group, whose actual controller is still SASASAC of the State Council.
Chinalco also disclosed in the above-mentioned report that the second step of this large debt-to-equity swap, namely, the above-mentioned fixed increase transaction, has been deliberated and approved by the internal decision-making body of Chinalco Group and has obtained the principled consent of SASASAC under the State Council. Next, it needs to be approved by the shareholders'meeting of listed companies and the Securities Regulatory Commission.
Debt-to-equity Swap Helps Central Enterprises De-leverage
Dong Mi of a listed company pointed out to the 21st century economic reporter that China Aluminum is not the first state-owned enterprise to eat the crab of "market-oriented debt-to-equity swap". Investors familiar with the capital market may remember that Chinalco's debt-to-equity swap landed in a very similar way to the previous implementation process of Sinopec Heavy Industries'debt-to-equity swap.
In the market-oriented operation of debt-to-equity swap in China's aluminium industry, there are two steps: the first step is to "convert subsidiary debt into equity"; the second step is to "issue shares to purchase assets by listed companies". After the implementation of the scheme, the investment institutions can gradually withdraw from the market after the lock-in period expires according to the relevant provisions of the listed companies.
According to the analysis of the above-mentioned people to 21st century economic reporters, the market-oriented debt-to-equity swap of China Aluminum Industry is expected to provide a replicable model case for other state-owned enterprises and state-owned enterprises interested in promoting deleveraging. It is expected that in the next period of time (not only in the second half of this year), according to the two-step path of Chinalco, the number of state-owned enterprises that continue to implement market-oriented debt-to-equity swaps will continue to increase.
"Debt-to-equity swap will be an important way and help for central enterprises to de-leverage. Two major positive factors have emerged. On the one hand, the policy trend is favorable, and the central government requires that we firmly do a good job in deleveraging, and grasp the strength and rhythm. On the other hand, we hope that the financial conditions will be more abundant. These people said.
At the end of June this year, the central bank announced its decision to reduce the reserve ratio of RMB deposits by 0.5 percentage points from July 5, 2018. It is estimated that about 500 billion yuan of funds will be released to support market-oriented "debt-to-equity swap".
Peng Huagang, deputy secretary-general of SASASAC, revealed at a new conference on July 12 that up to now, 18 central enterprises have actively and steadily promoted market-oriented debt-to-equity swap, and the amount of the framework agreement has been signed is only about 500 billion yuan.
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