Equity purchases to give Yunnan Aluminum control of additional primary capacity

Shenzhen Stock Exchange-listed Yunnan Aluminum has reached an agreement to acquire additional equity interests in three of its subsidiaries from Yunnan Metallurgical Group for about Yuan 2.27 billion ($320 million) through a cash-based, non-public transfer by agreement, according to a related-party transaction announcement released by the producer on November 25.

Yunnan Aluminum itself is a subsidiary of state-owned Aluminum Corporation of China Limited (Chalco) whose 29.1% share nonetheless gives Chalco majority control over the Kunming-based aluminum combine.

Under the deal it has reached with Yunnan Metallurgical Group, Yunnan Aluminum will purchase a 28.7% stake in Yunlv Yongxin, 27.3% in Yunlv Runxin, and 30% in Yunlv Hongxin, all of which are based in Yunnan.

After the transaction is completed (expected to cost Yuan 2.27 billion), Yunnan Aluminum's shareholding in the three subsidiaries will rise to 96.1%, 97.5%, and 100%. However, the company has not disclosed a specific acquisition timeline.

Besides Chalco and minor shareholders including Hong Kong Securities Clearing Co, Yunnan Aluminum's other shareholders include Yunnan Metallurgical Group which holds a 13% stake.

The acquisition aims to strengthen Yunnan Aluminum's equity-based primary aluminum capacity and increase net profits attributable to it, according to the announcement. The company can also expect to make savings by centralizing back-office operations now undertaken separately by the three smaller firms under its control, Mysteel Global notes.

The deal will increase Yunnan Aluminum's attributable primary aluminum capacity by 154,500 tonnes, with the increase stemming from two of the three subsidiaries – namely, Yunlv Yongxin and Yunlv Runxin, which have a combined primary capacity of 550,000 t/y. In addition, Yunlv Hongxin will serve as the company's platform for expanding into bauxite development and operations.

As China strictly regulates nationwide primary aluminum production capacity, smelters now can only obtain additional primary aluminum capacity through 'capacity swaps' via mergers and acquisitions, internal transfers, or capacity quota trading, Mysteel Global learned.

Operating around 11 subsidiaries across the hydropower-rich southwestern province, Yunnan Aluminum currently has 1.4 million tonnes of alumina capacity, 3.05 million tonnes of primary aluminum capacity, and 1.6 million tonnes of aluminum alloy and processed aluminum products capacity, according to its 2024 annual results.

Written by Iris Pang, pangjunyu@mysteel.com