Winsway not attractive anymore, analysts say

The Aluminum Corp of China (Chalco) did not walk away from Winsway Coking Coal just because it could not secure regulatory approvals, according to analysts.

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“I think that [not having regulatory approvals] is simply an excuse,” one Hong Kong-based analyst told Steel First.

Late last week, Chalco said it decided to drop its plan to buy a 29.9% stake in Winsway because it was unable to obtain “necessary approvals from relevant [Chinese] and overseas government and regulatory authorities”.

Back in April when Chalco offered to buy the stake at HK$2.12 ($0.27) per share, Winsway’s shares were trading at just below HK$2 each.

At the time of writing, the shares were trading at HK$0.98.

“It would almost be impossible to ask Chalco to pay more than double the price for Winsway of where it’s currently trading,” the analyst said.

In addition, it makes little sense for Chalco to buy Winsway now that it has withdrawn from the acquisition of SouthGobi Resources.

“It limits the synergies for Chalco to extract if it only has a logistics company, which is what Winsway is, without a mine,” the analyst said.

“It’s quite obvious that Chalco wanted to buy Winsway and SouthGobi as a package. Because it withdrew the SouthGobi acquisition, it shouldn’t be a big surprise that it’s withdrawn from the Winsway acquisition as well,” a second Hong Kong-based analyst said.

Nonetheless, Helen Lau, a senior analyst at UOB Kay Hian, told Steel First that she did not see a link between the two deals as SouthGobi coal only accounts for a small portion of those handled by Winsway.

“Winsway has already built a network in Mongolia. It has all the facilities and infrastructure at border crossings, and connections and expertise in delivering coal,” Lau said.

“Chalco still remains committed to Mongolian mining and related businesses as part of their diversification plan over the longer term. I think Chalco just wanted to reconsider the deal, pacing down their overall investment in Mongolia and gauging the market conditions more carefully,” she continued.

China imported 0.82 million tonnes of coking coal from Mongolia in August, according to Chinese customs data, compared with 2.52 million tonnes in June.

The two analysts, who wish to remain anonymous, played down the factor of lower Chinese demand for coking coal.

“Chinese steel production will definitely remain at a high level for a while longer and I think the demand for coking coal, particularly hard coking coal, will still be alright,” the second analyst in Hong Kong said.

“I think the demand story is more short term, and it will be a mistake for a company like Chalco which should be thinking a lot more strategically to be concerned about short-term market conditions,” the first analyst said.

Winsway as a standalone business is just not attractive.

“I find it hard to imagine that Chalco would only look at Winsway independently, because as a business it’s not as viable,” the first analyst said.

“A pure logistics company is not a sustaining business. Winsway probably has some relationships in order to secure those coking coal tonnages, but other companies will try to do that as well,” the second analyst said.

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