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.