From AFX News Limited

PITTSBURGH — Alcoa Inc, the biggest U.S. aluminum producer, has sold its nearly 7 percent stake in China’s largest aluminum maker for $2 billion.

Pittsburgh-based Alcoa said yesterday that it will continue to invest in the aluminum industry in China where it first opened offices in 1993 and currently manufactures foil, fasteners, automotive components and other products.

Alcoa had been an investor in Aluminum Corp. of China Ltd, also known as Chalco, since the Chinese company’s initial public offering in 2001. Its initial investment was less than $200 million.

The company sold its interest for the equivalent of $2.23 a share, a 15 percent discount to yesterday’s closing price on the Hong Kong Stock Exchange. The shares were marketed in Hong Kong and Europe and purchased by 20 to 25 major institutional buyers, according to Alcoa spokesman Jake Siewert. The sale was handled by Goldman Sachs.

"We normally do not act as financial investors, but we participated in the Chalco IPO six years ago to help facilitate its entry into the capital markets," Alcoa’s chairman and chief executive, Alain Belda, said in a statement. "Over the past seven years Chalco has become firmly established in the equity market so our role as a financial investor is no longer needed and we can redeploy our capital into other value-adding options, including projects in China. Alcoa has an ongoing share buyback program and has outlined plans to maintain its debt-to-capital ratio and invest in other projects in China and elsewhere. The sale will appear as a gain in Alcoa’s third quarter earnings, to be reported in October.”

Belda said Alcoa’s commitment to China has "never been stronger" and the company looks forward "to continuing to work with our partners and Chalco to help the industry realize its great potential."

The company said it was spending $300 million to expand its Bohai rolling mill in Qinghuangdao, a coastal city east of Beijing. Alcoa has formed several joint ventures in China in recent years as part of an effort to expand its presence there.

China is the world’s biggest producer and consumer of aluminum, with output at 9.3 million tons of primary aluminum in 2006, up from 3.4 million tons in 2001.

Charles Bradford, an industry analyst with Bradford Research/Soleil Securities in New York, said Alcoa’s stake in Chalco had already declined from 8 percent following an equity sale by the Chinese company in which Alcoa did not participate.

"Frankly, owning 6.9 or 7 percent of a venture really doesn’t do them any good," he said. "They have no control."

The sale may have been spurred by pressure on Belda to improve shareholder value, Bradford said. He added that the company probably would use the proceeds to buy back shares.

Bradford said Alcoa may have invested in Chalco in hopes that China eventually would relax its ownership rules, allowing it to take a larger position not just in the company but in the Chinese aluminum industry.

For more information about Alcoa, go to: http://www.alcoa.com.