China Zhongwang Announces Major Transactions
Invests USD3.8 Billion to Kick-start the Aluminium Flat Rolled Project
To Foster New Growth Engine
HONG KONG, Oct. 18, 2011 /PRNewswire-Asia/ -- The world’s second largest industrial aluminium extrusion product developer and manufacturer and the biggest one in Asia and China, China Zhongwang Holdings Limited, (“China Zhongwang” or “the Company”, together with its subsidiaries “the Group”; Stock code: 01333) announced major transactions in relation to the development of the synergistic aluminium flat rolled product business. The Group kick-started the development of the project as per its plan announced earlier this year and entered into a total of six equipment purchase agreements with three independent third party suppliers via two wholly owned subsidiaries. According to the agreements, the Group will invest approx. USD3.8 billion (approx. HKD29.5 billion) in total, payable in four installments between 2011 and 2014 for the purchase of hot continuous rolling mills and cold rolling mills for the production of medium-to-high thickness plate and sheet products, smelting and casting lines, quenching furnaces and heat treatment furnaces for the ancillary production of medium-to-high thickness plate and sheet products, and aluminium foil rolling mills, amongst others, for Phase 1 development of the aluminium flat rolled manufacturing base which will have an annual production capacity of 1.8 million tonnes. It will form a new growth driver of the Group.
Phase 1 Aluminium Flat Rolled Project with Production Capacity of 1.8 Million tonnes Marks a Remarkable Stride
Mr. Liu Zhongtian, Chairman and President of China Zhongwang, saw the commencement of Phase 1 development of the aluminium flat rolled product project as key milestone of the Group marking leapfrog development. “Widely applied in multiple industries, high-end aluminium flat rolled products are high value-added processed aluminium products with more technical content and richer profit margins. We have defined expansion plans to develop this high-end product for quite some time. An international reputable consultancy firm was hired to thoroughly research the market demand, technical barriers, talent acquisition, project scale and above all capital investment. We have well equipped ourselves to meet the necessary technical and financing requirements. As the world’s second largest industrial aluminium extrusion product developer and manufacturer, the Group is at the leading edge of aluminium alloy casting and smelting and possesses extensive upstream marketing and R&D resources of processed aluminium products. Our well-established business network and customer resources, among others, have also contributed to building a platform for the high-end aluminium flat-rolled business. China Zhongwang’s aluminium flat-rolled project focuses on the high-end segment of medium-to-high thickness plates, sheet products and foils. This, coupled with the gradual recovery of our industrial aluminium extrusion business which generates steady cash flows, will bolster the Group’s continued growth and generate added value for our shareholders,” Mr. Liu said.
Advance Capital Arrangement Set in Place, Ample Financial Resources
Mr. Lu Changqing, Executive Director and Vice President of China Zhongwang, revealed that the Group has made financial planning for business expansion well in advance. He said, “The Group has over RMB19 billion (approx. HK$23.3 billion) of cash on our balance sheet. At the same time, the Group has maintained a good relationship with financial and banking corporations in China to obtain credit facilities sufficient to meet our needs. Earlier on, we have fostered a 'Strategic Financial Partnership' with Bank of China and a 'Strategic Cooperation Agreement' with Industrial and Commercial Bank of China. We therefore have ample financial resources ready for the purchase of equipment for the flat rolled business and funds needed for business development.”
The three independent suppliers with whom the two subsidiaries of China Zhongwang have entered into a total of six purchase agreements are China Machinery & Equipment (HK) Co., Ltd. (“China Machinery”), a subsidiary of China Machinery & Equipment Limited, CEIEC (Hong Kong) Limited (“CEIEC”), a subsidiary of China Electronics Corporation, and Great Dynasty HK Co., Limited (“Great Dynasty”), a subsidiary of China Electronics Technology Group Corporation. Imported from countries such as Germany and the U.S., the equipment provided by these suppliers to China Zhongwang mainly includes hot continuous rolling mills and cold rolling mills for the production of aluminium alloy plate and sheet products, smelting and casting lines for the ancillary production of sheet products, and aluminium foil rolling mills for the production of aluminium foil products respectively. The major equipment is expected to be delivered in 2013.
The consideration for the equipment purchase is payable in cash in US dollars in four installments, with payment dates to be determined according to the actual order and delivery schedules. The consideration will be funded through the Company’s working capital, bank loans from commercial banks and other sources of financing available to the Company.
Robust Demand for Flat Rolled Products Offers Immense Potential
According to a report by Boston Consulting Group, the global consumption of aluminium flat rolled products is expected to grow from 15.6 million tonnes in 2009 to 28 million tonnes in 2020. China as the world’s fastest growing economy will grow at an even faster pace. China’s aluminium flat rolled product consumption is expected to grow from 5.9 million tonnes in 2009 to 14 million tonnes in 2020 and by then will account for 50% of the world’s total.
Globally, high-end products accounted for approximately 35% of total consumption, but in China, the high-end product segment fell far below the global level and accounted for 12% only. As energy saving and emissions reduction have become a global development trend, the application of high value-added aluminium flat rolled products in automotive, aviation, vessels and other transportation sectors are expected to rise. High-end aluminium sheets are also applied in aluminium pop-top cans. The supply of certain high-end product relies largely on import as Chinese manufacturers cannot satisfy domestic market needs due to the limitations of its production technology. This in return suppressed consumption growth and explains why the consumption of pop-top cans in China lagged behind world consumption. As the Chinese economy and consumer market continue to grow, the consumption of such products is expected to rise, offering China Zhongwang immense development opportunities.
“China Zhongwang aspires to be the world’s top developer and manufacturer of high-end processed aluminium products. We focus on 3 core businesses, namely industrial aluminium extrusion products, deep processing products and aluminium flat rolled products. We are optimizing the production capacity of the aluminium extrusion business with the addition of large extrusion presses to increase our production capacity to 1 million tonnes by the end of 2012. At the same time, we have completed the construction of a deep-processing centre and installation of new imported equipment is underway. These, together with the aluminium flat rolled product business which is scheduled to commence production in phases in 2014 and reach full designed annual capacity of 3 million tonnes in 2018, will form a solid foundation with three distinct revenue streams to deliver high sustainable growth and positive returns to shareholders. We will see a new Zhongwang,” Mr. Lu concluded.
The Equipment Purchase Agreement at a Glance
Through its two wholly owned subsidiaries, namely Liaoning Zhongwang Aluminium Co., Ltd. (“Liaoning Zhongwang Aluminium”) and Panjin Zhongwang Aluminium Co., Ltd.("Panjin Zhongwang”), China Zhongwang entered into equipment purchase agreements with three independent suppliers who are leaders in the electronics machineries and equipment sector.
China Machinery is a subsidiary of China Machinery Engineering Corporation, a large global conglomerate in China which is principally engaged in the provision of large-scale complete plant, various electrical equipment, petrochemical machinery as well as engineering machinery.
CEIEC is a subsidiary of China Electronics Corporation, one of the key state-owned conglomerates under the administration of the PRC central government and principally engaged in design, development, manufacturing, sales and service business in the semiconductor and electronics industry.
Great Dynasty is a subsidiary of China Electronics Technology Group Corporation, a large state-owned high technology conglomerate established under the authorization of the State Council of the PRC which principally provides tailor-made electronic information system and total solution services.
The six agreements are summarized as below:
a) The Liaoning Zhongwang Aluminium – China Machinery Agreement
b) The Panjin Zhongwang – China Machinery Agreement
c) The Liaoning Zhongwang Aluminium – CEIEC Agreement
d) The Panjin Zhongwang – CEIEC Agreement
e) The Liaoning Zhongwang Aluminium – Great Dynasty Agreement
f) The Panjin Zhongwang – Great Dynasty Agreement
Payment Terms
The consideration under each of the Equipment Purchase Agreement is payable in cash in US dollars in four installments:
(a) An advance payment of 30% of the consideration is payable within 10 days upon the purchaser’s receipt of the advance payment notice and the signed advance payment invoice(s);
(b) 60% of the consideration is payable when the equipment are available for shipment, and the purchaser have received the signed invoice(s);
(c) 5% of the consideration is payable upon the purchaser’s receipt of the signed invoice(s) and the equipment verification certificate; and
(d) 5% of the consideration is payable upon the purchaser’s receipt of the seller’s letter confirming expiry of the 12-month warranty period, which is signed by the purchaser.
About China Zhongwang Holdings Limited
China Zhongwang is the second largest industrial aluminium extrusion product developer and manufacturer in the world and the biggest one in Asia and China. Headquartered in Liaoning province, China, the Group has, over the years, committed itself to the energy-saving and light-weight development of, amongst others, transportation, machinery equipment and electric power engineering sectors through the provision of high quality industrial aluminium extrusion products.
After 18 years of dedication and hard work since its founding in 1993, the Group owned 75 leading aluminium extrusion production lines in the world as at 30 June 2011, of which the 125MN oil-driven dual action aluminium extrusion press is one of the largest and most advanced presses in China and in the world. It has built the world’s leading aluminium tilt smelting and casting equipment in the industry, as well as the largest customized industrial aluminium extrusion product die design and manufacturing centre in Asia. The Group’s annual production capacity as at 30 June 2011 was approximately 700 kilotonnes. The close coordination among the processes, namely product development, smelting and casting, die and extrusion, and the advanced technologies applied is the Group’s important source of competitiveness and outstanding features.
The Group is principally engaged in the production of high precision, large-section and high value-added industrial aluminium extrusion products which are widely used in the transportation sector (including railway passenger and cargo carriages, metropolitan rails, automobiles, heavy trucks, vessels, aviation and aerospace) as well as machinery equipment and electric power engineering fields.
In order to consolidate its leading position in the industrial aluminium extrusion industry, the Group will continue to focus on sectors such as transportation, machinery equipment and electric power engineering, with emphasis placed on the light-weight development towards the target of reducing energy consumption and achieving low carbon emission. In addition, the Group plans to extend its business into the high value-added aluminium flat rolled product segment. This new business venture will not only enable the Group to further capitalize on its leading edge in aluminium alloy smelting and casting and product research and development, but also achieve synergies with its existing business by taking full advantage of its customer and market resources in related downstream application sectors.
To sum up, the Group strives to become a driving force for light-weight development in China to build a new and brighter future.
For further information on the Group, please visit www.zhongwang.com.
This press release is issued by PR ASIA Consultants Limited on behalf of China Zhongwang Holdings Limited.
