Aluminum maker Zhongwang files for bankruptcy

Aluminum producer and extruder China Zhongwang, which in 2017 the United States government turned down as a potential buyer of the former Aleris, reportedly has filed a bankruptcy petition in its home province of Shenyang, China.

The bid for Aleris failed after the Committee on Foreign Investment in the United States (CFIUS) “raised concerns about the transaction,” according to Aleris in a November 2017 announcement. (Aleris eventually was acquired by Atlanta-based Novelis Inc.)

China Zhongwang Holdings Ltd. board chair Liu Zhongtian also received unwelcome attention from the U.S. Department of Justice (DOJ) the previous decade regarding a scheme to send semifinished aluminum into the U.S. in the form of pallets, though there were no buyers for the pallets. Rather, the DOJ said the intent was to remelt the aluminum to skirt import tariffs.

Last August, the DOJ announced six California-based companies attached to that arrangement had been convicted by a federal grand jury of scheming to avoid payment of $1.8 billion in import duties on semifinished aluminum imported from China.

According to the DOJ, “The aluminum sold to U.S.-based companies controlled by Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.”

Media reports about the new bankruptcy petition indicate Liu’s problems may stem more from an acquisition spree with a reach that may have exceeded its grasp. A report on the AG Metal Miner website points to the purchase of “a luxury Australian yacht maker [that] likely netted the group nothing.”

Aluminum Insider cites sources who “estimate the firm has about $64 billion in liabilities but less than half that amount in assets at present.”

Additionally, market conditions in China—and in particular in its construction sector—have been on a downward trajectory to an extent that is not completely transparent.

The Metal Miner report speculates parts of Zhongwang Holdings could be targeted for takeovers by state-owned enterprises (SOEs) in China, rather than seeing most of the firm’s aluminum capacity exit what could be a shrinking market.

At times in China, manufacturing SOEs with access to funding from SOE banks are encouraged to bail out such companies with a goal of saving jobs rather than considering whether the acquisition makes financial sense.