Chalco Raises Funds for Acquisitions       

A senior executive of the Aluminum Corp of China (Chalco, SH: 601600) said on November 17th it will use cash reserves to weather the financial crisis, as part of the company's fiscal plan for 2009.
    "The company aims to raise RMB60 billion in cash. We already have between RMB40 billion and RMB50 billion, and the rest will come soon," he said.
   Chalco almost lost its stake in Rio Tinto Plc and part of its cash in September with the bankruptcy of Lehman Brothers, and in October, its has to cut electrolytic aluminum production by 18% and alumina by 38% because of lower demand.
    "To combat the current difficulties, we must have sufficient cash in hand," the executive said.
   Chalco actually started to hoard money since the start of the year, when the snowstorms caused Chalco nearly RMB220 million in loss. Later, the May 12th Sichuan earthquake and deteriorating economic situation made Chalco realize it must hold large amount of cash.
   Chalco said it is reaching its RMB60 billion goal via various channels, including cash flow from operations and capital market fundraising, although the company did not elaborate.
   In the first nine months of the year, Chalco reported a net profit of RMB2.584 billion on sales of RMB58.69 billion.
   On May 22nd, 2008, Chalco won approval to issue medium-term notes worth up to RMB10 billion. The first tranche of RMB5 billion was issued on June 4th, and the second tranche of RMB5 billion on October 30, altogether raising RMB10 billion.
    "We also could raise cash by cutting back on procurement and delaying some investment," the executive said.
   Chalco may also cut salaries - although it is unknown by what margin - and streamline internal structure to save costs, another Chalco source said.
   "The RMB60 billion will be mainly spent on the core business, including improving technical know-how, strengthening safety and environmental protection efforts and expanding overseas reserves of resources," Chalco said.
   An analyst, who wished not be identified, said the main purpose for Chalco to hold RMB60 billion cash in hand is to seek overseas acquisition opportunities, reigniting its long-standing intention to increase its stake in Rio Tinto. But Chalco may not move in the near term, the analyst said.
    In February, Chalco, along with Alcoa Inc, acquired a 12% stake in Rio Tinto, and in August it won Australian government approval to increase the holding to 14.99%.
    "Now is the best time for acquisition, so we are actively seeking acquisition opportunities, with the changing market conditions, to boost Chalco's reserve capability," the executive said.