CASHED-UP metals recycler Sims Metal Management has continued to take advantage of tougher trading conditions, finalising its sixth acquisition in the past 12 months, this time taking its first direct step into the Chinese market by buying a 20 per cent stake in Hong Kong company Chiho-Tiande Group for $US137 million ($132 million).
Sims is buying 18 per cent of Chiho-Tiande, which has operations in China and Hong Kong, mostly from interests associated with the founder and chairman, Fang Ankong. It is also acquiring an option over a further 2 per cent of the Hong Kong company's capital.
Chiho-Tiande claims to be the largest mixed-metal scrap importer and processor in China. Sims has been a large supplier of material to the company for some time.
The Asian company has recently established scrap-metal recycling in Shanghai and announced plans to spend $100 million to expand to Yantai on the coast of the Bohai Sea and also in Hong Kong, focusing on electronics recycling.
Before the deal with Sims, Mr Fang held 41.6 per cent of Chiho-Tiande's capital. Once bonds issued as part of the deal are converted, he will hold a combined direct and indirect 32 per cent stake in the concern, with investment company Delco holding 24.5 per cent.
The move into China follows a move into India. A securities analyst with JP Morgan, Ben Wilson, described the acquisition of Chiho-Tiande as a "tentative beachhead".
"It is a disciplined entry into the Chinese market," he said.
JP Morgan has an "overweight" recommendation on Sims Metal.
Analysts said that while the Chinese market appeared attractive, it had few players of any size, making it a difficult market to enter.
Sims said that after several years of study, it had identified Chiho-Tiande as a company that would "define and shape the nascent Chinese recycling landscape".
Allowing Sims to take a large stake in the company would "significantly add value and expertise", Chiho-Tiande said, which would "considerably enhance the group's current position for future expansion" while also helping to "significantly enhance the overall reputation and strategic growth of the group within the metal recycling industry".
Chiho-Tiande, which is listed on the Hong Kong Stock Exchange, is valued at $HK4.37 billion ($541 million).
Chiho-Tiande doubled its net profit to $HK305 million in the six months to June on revenue of $HK4.5 billion. Earnings a share rose to $HK0.30 from $HK0.21.
Its shares were among the largest gainers on the Hong Kong market yesterday, rising by more than 9 per cent. They gained $HK0.38c to $HK4.33 on the deal with Sims, after hitting a high of $HK4.37.
Sims Metal shares rose 13c to close at $13.63 in a firmer market.
Frequently Asked Questions about this Article…
What stake did Sims Metal Management buy in Chiho-Tiande and how much did it pay?
Sims Metal Management agreed to buy a 20% economic stake in Hong Kong-listed Chiho-Tiande for about US$137 million. The deal is structured as an 18% direct purchase from interests linked to founder Fang Ankong, plus an option to acquire a further 2% of the company’s capital.
Why is Sims Metal Management entering the Chinese recycling market by investing in Chiho-Tiande?
Sims says the investment is its first direct step into China after years of study, aiming to partner with a company that can 'define and shape the nascent Chinese recycling landscape.' Analysts described the move as a disciplined, tentative beachhead into a large but hard-to-enter market where Chiho-Tiande’s local presence and capabilities could help Sims expand its Asian footprint.
How large is Chiho-Tiande and what recent financial results did it report?
Chiho-Tiande is listed on the Hong Kong Stock Exchange and was valued at about HK$4.37 billion (roughly US$541 million) in the article. It reported net profit of HK$305 million for the six months to June on revenue of HK$4.5 billion, with earnings per share rising to HK$0.30 from HK$0.21.
How did the stock market react to the Sims–Chiho-Tiande deal?
Chiho-Tiande shares were among the largest gainers on the Hong Kong market, rising more than 9% to about HK$4.33 (having hit HK$4.37). Sims Metal shares also firmed, rising 13 cents to close at $13.63 in a stronger market.
What will founder Fang Ankong’s and Delco’s holdings look like after the deal?
Before the deal Fang Ankong directly held 41.6% of Chiho-Tiande. Once bonds issued as part of the transaction are converted, his combined direct and indirect stake is expected to be about 32%. Investment company Delco is reported to hold about 24.5% of the company.
What strategic benefits does Chiho-Tiande expect from Sims’ investment?
Chiho-Tiande said allowing Sims to take a large stake would 'significantly add value and expertise,' helping to enhance the group’s position for future expansion and improving its overall reputation and strategic growth within the metal recycling industry.
Is this Sims acquisition part of a wider expansion by the company in Asia?
Yes. The deal follows Sims’ earlier move into India and represents its sixth acquisition in the past 12 months, signalling an active push to grow its presence across Asian recycling markets.
What are the opportunities and challenges for investors in the Chinese scrap-metal recycling market?
The Chinese market looks attractive due to growth and companies like Chiho-Tiande expanding into electronics recycling, but analysts note it has few large players, making entry difficult. For investors, partnership strategies—like Sims’ stake in an established local recycler—can offer exposure while mitigating some of the market-entry challenges. (JP Morgan had an 'overweight' recommendation on Sims Metal at the time.)
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