An investment analyst based in Australia is questioning why some insiders have been selling off chunks of Beijing-based Aluminum Corp. of China (CHALCO) stock in the first half of 2018.
Raj Burman of Sydney-based Simply Wall Street says funds or individuals he considers insiders “have divested from more than 147.85 million shares in the large-cap stock within the past three months.”
In his July 16 website post, Burman says the overall ownership stake of CHALCO insiders has not declined in the aggregate in the past three months, but he expresses concerns about one seller in particular.
Burman says an entity that sold on the open market in the last three months was institutional investor Franklin Resources Inc., unit of JPMorgan Chase & Co. Brokerage and Securities Investments. The firm, while not holding a board seat, has “insights gained from direct access to management as a large investor [that] would make it more well informed than the average retail investor. In this specific instance, I would classify this investor as a company insider,” he writes.
The curious aspect of selling in early 2018, Burman adds, is that analysts as a group are forecasting 243 percent earnings growth for CHALCO during the next three years, which he dubs “a fantastic outlook for the business.” He adds, “This is inconsistent with the signal company insiders are sending with their selling activity.”
A 243 percent growth rate may also be inconsistent with CHALCO’s early July announcement that it will cut its alumina refining output by 770,000 metric tons because of current market conditions.
Burman says an alternative reason for selling could involve taking advantage of price volatility to repurchase the shares later.
CHALCO, which describes itself as “China’s largest alumina and primary aluminum producer, and the world’s second largest alumina producer,” engages mostly in primary aluminum production.
The long-term viability of a state-owned enterprise such as CHALCO may not be of great concern to recyclers and metals traders, but credit tightness in China’s private sector could pose a wider near-term threat.
A mid-July online report in the Hong Kong-based South China Morning Post portrays the demise of one private company—which included steel pipe manufacturing as one of its activities—in the face of a lending landscape that has changed abruptly in China.
Also in mid-July, Bloomberg reported a coal mining firm based in Shanxi Province, China, has attained the dubious honor of filing for the nation’s largest bond default bailout in 2018, with a price tag of up to $10.8 billion. According to a Bloomberg News report, the firm had borrowed heavily to diversify and expand its business.