Once a symbol of American industrial might, Alcoa was split in two in 2016. The revamp came amid falling aluminium prices and as a result of intensifying competition from Chinese producers. At nearly the same time, China’s biggest private-sector aluminium firm Zhongwang found itself the subject of anti-dumping investigations in Washington. Short-sellers were pressuring Zhongwang too. An anonymous research outfit called Dupré Analytics published a damaging report in 2015, describing Zhongwang as “the largest and most complex China fraud ever”. It accused the Hong Kong-listed metals firm of various wrongdoings, including the stockpiling of aluminium products in Mexico in a scheme to skirt US tariffs.
Like Alcoa, Zhongwang was also suffering from a faltering commodities market. Reacting to the challenges, it began to make more frantic financial manoeuvres, including a backdoor listing plan in the local A-share market. It also tried to expand overseas. Acquisition targets included US rival Aleris, which manufactures the aluminium products used in military tanks, Germany’s Aluminiumwerk Unna (reportedly a supplier for China’s C919 jetliner), as well as SilverYachts, an Australian shipyard that makes aluminium superyachts.
Few of the takeover bids came to fruition. In fact, things went almost entirely downhill for Zhongwang and its boss Liu Zhongtian. Local regulators started cracking down on international M&A deals. Zhongwang’s secondary listing plan was also shelved. Over in the US, the then occupant of the Oval Office, Donald Trump, announced punitive tariffs on imports of Chinese aluminium, firing the starting gun on what has become a longrunning trade row.
In August this year it got even worse when a US federal jury convicted six companies – all said to be linked to Zhongwang boss Liu – of conspiring to evade $1.8 billion in duties. According to Chinese media, the 57 year-old faces a sentence of 465 years in an American jail. There’s no chance of Beijing extraditing one of the country’s so-called ‘aluminium kings’, of course. But it’s another shadow on Zhongwang’s reputation. Just days after the American court ruling, trading in the company’s Hong Kong-listed shares was also suspended, after it failed to publish financial statements for the six-month period that ended in June.
Earlier last month, a number of independent directors resigned from Zhongwang’s board. In the stock exchange circular that followed, the company admitted that two of its main business units were “facing severe difficulties in [their] operation” which they would be unable to overcome “on their own”.
Without giving further details, the company said it had initiated talks with other parties to “ensure continuous and orderly production”. That’s a coded way of suggesting that a bailout will be needed to prevent one of the most important firms in China’s northeastern rustbelt from going bust.
Zhongwang’s local critics – of which there are a few – aren’t solely blaming Trump’s tariffs for making life difficult. Sina Finance notes, for instance, that Zhongwang’s struggles underscore a broader problem for firms in industries plagued with overcapacity, especially those that fail to move up the value chain.
Hongqiao, a Shandong-based aluminium firm listed in Hong Kong, was another target of short-sellers in 2017. It also faced a trading suspension that lasted several months. The company likewise suffered from US tariffs. However, by refocusing on its core business and upgrading its production capacity, Hongqiao not only survived but thrived. Sina Finance notes that Hongqiao’s share price rebounded to record highs earlier this year.
Zhongwang, by comparison, enjoyed its golden period just ahead of the Beijing Olympics when it won a glut of business. The Rmb4 trillion ($625 billion) stimulus package that followed the 2008 global credit crisis gifted the company more fat contracts. It went public in 2009, reaching a peak market capitalisation of more than Rmb100 billion that year. Prior to its trading suspension last month, Zhongwang was worth less than Rmb10 billion. Investors will be watching to see if there is a white knight willing to come to the rescue…
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.