Near the end of 2017, China Aluminum (601600.SH), which has been headline in the capital market this year, has once again given investors good news. The good news this time is about de-leveraging. On the evening of December 4, the Aluminum Corporation of China announced that it intends to introduce eight investors to increase the total capital of RMB 12.6 billion through its four wholly-owned subsidiaries through the two methods of “direct conversion of creditor’s rights into equity†and “cash-repaying debtâ€. The implementation of market-oriented debt-to-equity swaps. Chinalco is a state-owned company under the direct control of the SASAC. It is listed on the A-share listed company of China Aluminum Corporation (Group), and it is also the leading domestic listed aluminum company. Its alumina production capacity is 16 million tons, which is the largest aluminum oxide producer in China. The electrolytic aluminum production capacity of 4.3 million tons ranks second in the country. According to the latest announcement, the eight investors to be introduced by Chinalco include: HuaRui Ruitong, China Life Insurance, Zhaoping Investment, China Cinda, CPIC Life, BOC Finance, ICBC Finance and ABC Finance. “The above 8 institutions are all well-known investment institutions in China. Their tens of billions of capital investment is definitely promising for the non-ferrous market.†China Aluminum News spokesman Nie Zhen told 21st Century Business Herald reporter on the 8th investment mentioned above. The four targets of the planned capital increase are all wholly owned subsidiaries of Chinalco. Debt-to-equity swap The four subsidiaries of Chinalco are specifically: Chinalco Shandong Co., Ltd. (hereinafter referred to as "Chinalco Shandong"), Chinalco Zhongzhou Aluminum Co., Ltd. (hereinafter referred to as "Zhongzhou Aluminum") and Baotou Aluminum Co., Ltd. (below Referred to as "Baotou Aluminum" for short) and China Aluminum Mining Co., Ltd. (hereinafter referred to as "China Aluminum Mining"). According to an anonymous insider of Chinalco Aluminum Corporation, Chinalco's current capital increase in its subsidiaries is also the first case of a non-ferrous central SOE directly controlled by the SASAC. According to the source, the listed company had issued an announcement on October 27th. “The earliest two sides have demarcated the framework for the debt-equity swap of the six subsidiaries. This time the four parties that were released after the consultation were eventually considered by the board of directors. ." The reason why the above four subsidiaries are selected is that the listed companies are wholly-owned. It is relatively difficult to introduce capital and convert debt into debt. The four company subsidiaries are also "China Aluminum's quality assets, but the temporary debt ratio is relatively high." The 2016 financial report showed that Baotou Aluminum contributed net profit of 795 million yuan, Chinalco Shandong 385 million yuan, Zhongzhou Aluminum 15.555 million yuan, and Chinalco's net profit of 2.72 million yuan. In the first half of this year's financial report, the above four companies remained profitable. Interim data show that in the first half of Baotou Aluminum's net profit was 252 million yuan; Chinalco Shandong net profit was 159 million yuan; Zhongzhou Aluminum was 136 million yuan; China Aluminum Mining was 1.853 million yuan. Chinalco will receive a quota of 5.77 billion yuan in the distribution of 12.5 billion in funds, which is the highest among the 4 subsidiaries. After the capital increase, the investor will obtain a total of 81.14% equity, China Aluminum Corporation's shareholding ratio will drop to 18.86%, Baotou Aluminum will receive a capital increase of 2.64 billion yuan, and the investor will receive 25.67% of the equity after the capital increase, and Chinalco will reduce its shareholding ratio. 74.33%; Zhongzhou Aluminum earned 2.399 billion yuan; after the capital increase, the investor obtained 36.90% of the equity, and China Aluminum held 63.10% of the equity; Chinalco Shandong obtained a capital increase of 1.792 billion, after the capital increase, the investor and the listed company The shareholding ratios were changed to 30.80% and 69.20% respectively. Through this capital increase, the assets and liabilities of the four subsidiaries will drop significantly. Among them, the debt ratio of Chinalco Shandong can be reduced from 56.10% to approximately 29.01%, the debt ratio of Zhongzhou Aluminum can be reduced from 56.54% to approximately 25.99%, and the debt ratio of Baotou Aluminum can be reduced from 70.05% to approximately 53.92%. Chinalco's debt ratio can be reduced from 90.95% to approximately 25.90% (the largest decline in the debt ratio). The landing of market-based debt-to-equity swaps will push Chinalco to further reduce its debt ratio. According to the announcement on the 4th, as of September 30 this year, the asset-liability ratio of China Aluminum's consolidated caliber was 72.22%, still at a relatively high level. However, this indicator is expected to reduce to 66% after the capital increase. However, it is emphasized that after the completion of the capital increase, China Aluminum will still have substantial control over the above four companies. Aluminum Corporation of China also said in the announcement that “this capital increase is an important measure for the company to implement market-oriented debt-to-equity swaps and to actively and steadily reduce the leverage ratio, in line with the country’s relevant policy orientation and company development goals.†De-leverage boosts performance In fact, the debt ratio of China Aluminum has been declining for the past three years. This year, with the rebound of commodity markets and the special action of China to remove production capacity and cracking illegal electrolytic aluminum production capacity, the prices of non-ferrous products such as electrolytic aluminum and alumina continue to rise. According to the 21st Century Business Herald, the price of electrolytic aluminum this year not only reached the 15,000/ton mark from the level of 13,000 yuan at the beginning of the year, but hit a high of 17,000 yuan at one time (there was a correction in the near term but it still maintains a high consolidation above 14,000). . The rise in product prices has greatly improved the benefits of non-ferrous companies. The three quarterly reports released by Chinalco at the end of October showed that the company achieved a net profit of 1.356 billion yuan in the first nine months of this year, a year-on-year increase of nearly 10 times; and a non-net profit of 1.2 billion (a loss of 800 million yuan in the same period of last year). It is worth emphasizing that in the third quarter of this year, China Aluminum achieved a revenue of 48.5 billion in a single quarter, with a net profit of up to 600 million yuan. When interviewed by reporters from the 21st Century Business Herald on the 5th, the China Nonferrous Metals Industry Association’s vice president said that China’s aluminum industry’s current alumina production cost has entered the top 40% of the industry, and the cost of electrolytic aluminum has entered the top 45% of the industry, including Guangxi. The cost competitiveness of companies such as Baotou Aluminum has already been at the top of the industry. If this market-based debt-to-equity swap is successfully implemented, the total cost of the product is expected to decrease further after the company's debt burden is reduced for four subsidiaries including Baotou Aluminum. China Aluminum News spokesman Nie Zhen said in an interview: “The drop in the debt ratio of listed companies will provide active support for the entire Chinese aluminum company to continue its supply-side structural reforms and the central enterprises’ de-leveraging.†Since last year, the reduction of leverage of state-owned enterprises has become a top priority in the supply-side structural reforms. Among them, how effective and reliable the high debt ratio of large-scale industrial and mining companies have been reduced has always been a common problem for many companies. According to the latest data released by the SASAC in October this year, as of the end of September this year, the average asset-liability ratio of the 98 central SOEs under the jurisdiction of the SASAC remained stable at 66.5%, a decrease of 0.2 percentage points from the beginning of the year. Shen Ying, chief accountant of SASAC, said that SASAC is also helping central enterprises to reduce leverage through various means and channels. According to Shen Ying, at present, with the cooperation of the relevant departments, the central enterprises have achieved certain results in debt-to-equity swaps. 36 intentional and better-performing central enterprises are carrying out this work, and 14 have signed a debt-to-equity swap agreement. It reached a scale of more than 4400 billion.