XinRen Aluminum

XinRen Aluminum: Could see positive interests after grp announced plans to make a strategic acquisition.

Under a conditional call option agreement with Wealth Checker, XinRen will buy a 21% stake in a growing primary aluminum producer in Xinjiang that has its own power plants. Xinjiang Plant has a production capacity of 447,000 tpa, a third of which is currently being utilized in trial production. (XinRen’s smelting capacity is at 275,000 tpa), in addition to two independent power plants (IPPs).

Grp note that option is an excellent investment opportunity for XinRen to immediately add a highly cost-efficient and integrated mega smelting and fabrication facility to its existing operations. The proposed acquisition is expected to boost Grp’s bottom-line and returns, and enable XinRen to lock in a lower cost structure as well as widen its lead over PRC peers.

The acquisition will more than double grp’s smelting capacity to 722,000 tpa and enhance XinRen’s lead as an integrated upstream player in aluminum production. Grp will have a second call option to buy another 30% stake in CLI after completing the purchase of the first 21% shareholding interest.

Grp intends to finance the acquisition through both internal funding and external borrowings. Option agreement is yet another strategic step undertaken by XinRen to expand as well as integrate its operations more comprehensively, thereby enhancing profitability.

We note that move could be positive for grp, in an industry where the govt has been curbing smelting capacity, in a bid to phase out unproductive and cost inefficient smelters.