Alcoa (AA) Selling Entire Stake in Aluminum Corp of China (ACH)

This is quite interesting news.

• Alcoa Inc. (AA), the world's top aluminum maker, is selling its entire stake in Aluminum Corp of China Ltd (ACH), for up to US$2 billion, reaping a potential profit on its investment of as much as US$1.9 billion.
• Alcoa will sell 700 million Chalco shares, with an option to increase the number to 884.2 million shares, at between HK$17.26 and HK$18.27 apiece, a term sheet said on Wednesday.
• The selling price represents a discount of between 10.4 percent and 15.4 percent against the stock's closing price of HK$20.40 on Wednesday.
• Alcoa bought the shares of Chalco, the world's third-largest producer of alumina, in 2001 in an initial public offering at HK$1.37 per share, forming a strategic alliance.
• The stake accounted for about 6.86 percent of Chalco, China's top alumina and alumina producer, as of the end of June.
• Analysts said the share sale may fuel profit taking later as Chalco shares have nearly tripled this year, easily outpacing a 40 percent gain in the index of Chinese companies listed in Hong Kong, over the same period
• "This is a change in the strategic partnership. When Chalco did its placement last year, Alcoa didn't subscribe to maintain its stake. That was an early signal," said Helen Wang, an analyst at DBS in Beijing.

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Takeaways: This is interesting on a number of levels. First, who knows the aluminum industry better than industry giant Alcoa? Why would they be selling? The bull case for China is unending growth from here to 2100. So why sell? Hmmm....

Second, they were willing to sell at a 10-15% discount to market prices. That's pretty severe. Again, why so willing to sell?

I've posted numerous times about the impending bubble in Chinese A shares, and this is just another 'prick' to the balloon. I can understand selling some portion to lock in profits but what is Alcoa seeing that makes it want to exit in whole? Especially in the world's eventual largest market?

I sold most of the fund's stake in Aluminum Corp of China (ACH) on its recent nearly DOUBLING in just a 2 week period. I am long term bullish on China but right now with the crazy upward moves in many of the names since mid August, the risk/reward doesn't seem to be in favor of longs. Does not mean the stocks cannot continue to go up, but the risk has risen exponentially from even a few weeks ago with the stock prices surging in such a manner.

Note: Chalco = Aluminum Corp of China

Long Aluminum Corp of China in fund; no personal position