Novelis Korea has decided to raise its stake to a controlling position in South Korea based Taihan Electric Wire Company.
The company recently announced that it has reached an agreement with TEC and other shareholders of its subsidiary to purchase 31.2% of the outstanding shares in the Korean corporation for approximately USD 350 million in an all cash transaction. This would take its ownership to 99% of the outstanding shares in the Korean company. The sale is expected to close by December 31st 2011.
Mr Phil Martens president and CEO of Novelis said that “Our decision to purchase the remaining minority interest in Novelis Korea represents another key step in Novelis’ strategy to prepare for future growth in Asia.”
He sees Asia as the largest and fastest growing region for aluminum rolled products with an expected annual growth rate of 8% for the next five years. The current deal will enable Novelis to strengthen its position in the beverage can, electronics and automobile markets.
Experts said that the move is centred on two main aspects one, to give minority shareholders of Novelis Korea an exit route without listing the shares on the stock exchange and second, a stronger and a diversified position in the South Korean market. TEC is a leading manufacturer of domestic cables and optical fibre cables and also deals in copper rods and stainless steel.
Mr Pritesh Vinay and Mr Kunal Singh of Goldman Sachs said that “The Korean business accounted for 19% of shipment, 18% of revenue and 21% of EBIT of Novelis for FY2011.”
In fact, South Korea is big on its growth strategy where the company is currently expanding its plant capacity by almost 50% to one million tonnes per annum of aluminum rolling capacity at an investment of USD 400 million. The expansion will include construction of a state of the art recycling center for aluminum beverage cans and a casting operation with annual production capacity in excess of 260,000 tonnes of sheet ingot.
The company hit the ground running for its expansion work in the last quarter and the plant is expected to be operational by 2013 end. At a recent conference call, the company said Asia is expected to post a robust growth in flat products over the next few years, especially driven by cans and automobiles. In fact the company is bullish on the growing use of aluminum for automobiles as a light weight alternative for steel.
Mr Martens said that the long term outlook for the automobile industry looks good. We anticipate that between 2011 and 2016 the demand for aluminum from the automotive industry will grow at a rate of 25% and a substantial part of it will also come from Asia.
He added that this is in contrast to the expected demand from electronics at 6% and beverage cans at 4% to 5%. Mr Vinay and Mr Singh however throw a bit of caution here and suggested that going forward the only possible risks could be volatile LME prices and delayed project execution.
(Sourced from www.dnaindia.com)
