Tumbling stocks, weak employment data, soaring crude oil prices,
increased chances of a US rate hike and a downgrade to underweight by a
major US investment bank – the current conditions certainly aren't the
most conducive for a capital raising exercise. But solar wafer
manufacturer Renesola appears to be shrugging it all off and on Friday
launched a follow-on offering of American depositary shares (ADS) that
could raise about $170 million to $180 million, based on current prices.
The marketing will continue for another week with the pricing scheduled to take place after the US close on June 17.
This
is the second fund raising exercise for the company this year after its
US listing in late January, which may explain the intense selling
pressure on the stock since it launched the deal. Based on the decline
in the US, the company has lost 19.3% of its market value in the past
three sessions, including a 4.4% drop last night when the Dow Jones
index staged a modest rebound and ended 0.1% higher. The stock is also
listed on London’s Alternative Investment Market (Aim) where it has
fallen 20% in the same period. advertisement |
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However,
Renesola has had a spectacular run since it hit a closing low of $7.60
on March 20, gaining more than three-fold to a high of $27.80 three
weeks ago. And although it has slipped from the peak, it is still up
51% since its New York trading debut at $13 on January 29, compared
with many other new stocks that have yet to move into the black this
year.
Ironically though, this outperformance, which has been
driven by strong end-market demand and high selling prices, was one of
the reasons why Morgan Stanley downgraded the stock to underweight last
week. Based on the closing price on Aim on June 30, Renesola’s shares
traded at a premium to nearly all its Asian peers at a 2009
price-to-earnings ratio of 20 times, leaving limited room for further
gains, the investment bank said in a research note.
“For more
upside, the shares would need higher than expected upstream pricing,
i.e. prolonged polysilicon shortage, in our view,” Morgan Stanley’s
analyst team argued. Its new target price of GBP4.20 per share implied
34% downside from the May 30 price and 16.5% based on the US close
Tuesday.
The reason why Renesola is taking its chances in the
market is obvious – it needs money to fund its growing business.
According to the prospectus, it is hoping to raise at least $170
million from the follow-on, of which approximately $70 million will be
used to expand its solar wafer manufacturing facilities and for the
purchase of additional equipment for its wafer capacity expansion plan
for 2008 and 2009. Another $100 million will go towards investments in
polysilicon production in 2008 and 2009.
To capitalise on the
growing demand for wafers that are used to produce solar cells, the
company intends to increase its annual ingot manufacturing capacity to
approximately 645MW by the end of this year from 378MW at the end of
2007 and its wafer manufacturing capacity to 585MW from 305MW. By the
end of 2009 it plans to have a manufacturing capacity of 1,000MW for
both ingots and solar wafers.
In the first quarter, the company
recorded a net revenue of $123 million, which was 28.0% higher than in
the previous quarter a 242% improvement from the first quarter 2007,
which the company said was “primarily attributable to an increase in
output from (its) expanded production capacity and an increase in the
average selling price of wafers”. Net income increased 1.2%
sequentially and 160.6% year-on-year to $17.7 million.
Renesola
is offering 9 million ADS plus a greenshoe of 1.35 million additional
shares. Based on Tuesday’s closing price, the deal could fetch $177
million, or up to $203 million if the shoe is also exercised. One
source says the fact that the deal is marketed without a price range
and will be priced at a discount margin versus the underlying shares
should make it possible to get it done, despite the jittery market
sentiment.
“The solar power sector has been very volatile, but this is a solid enough business for people to look at,” he says.
Aside
from the continued strong demand for solar power products in general –
as soaring oil prices are prompting more companies to look for other
energy alternatives – Renesola has also been attracting interest
because of its ability to produce solar wafers from a wide range of
silicon raw materials, including reclaimable raw materials, and has
also begun to produce its own polysilicon through a joint venture in
China, using proprietary low-cost technologies. This means it is
suffering less than most of its competitors from the continuing global
shortage of polysilicon, which is a key raw material for the
manufacturing of wafers.
Of the base deal, 90.5% or 8.15
million ADSs are new, while the remainder will be sold by existing
shareholders. Pre-shoe the deal accounts for about 27.8% of the
enlarged ADS capital or 13.4% of the enlarged share capital overall.
Each ADS accounts for two common shares.
Credit Suisse and Deutsche Bank are the joint bookrunners. The same two banks also arranged the $130 million US IPO in January.
And
Renesola isn’t the only seller that is prepared to take its chances in
the current market. Yesterday, Singapore’s United Overseas Bank (UOB)
was in the market trying to raise $38.6 million from the placement of
2.1 million ADSs in Chinese medical research company WuXi PharmaTech.
The deal, which was offered at a fixed price of $18.40 per ADS, was
launched after the US close on Monday and was due to close just before
the opening yesterday after giving Asian and European investors a
chance to participate. Credit Suisse arranged this deal too.
The
price equals a 4.9% discount versus Monday’s close of $19.35. As can be
expected after a placement, the stock fell by the same amount yesterday
in the wake of the deal, closing 1 cent above the placement price at
$18.41.
UOB, which owned 12.7% of WuXi before this
transaction, is a pre-IPO investor in the company and was one of the
investors due to sell shares as part of a combined follow-one and
sell-down that the company filed for in early April. That offering was
never launched, however, as the company supposedly didn’t find the
right window amid the volatile market conditions. UOB would have been
less worried about the price moving up or down a few dollars, however,
as sources say it bought its shares at a very low price and thus is
sitting on a sizeable profit either way.
Like many other stocks,
WuXi has been on a downward trend since late October when it hit a
record high close of $41.28. Despite this 55% drop, however, the stock
is still up 31.5% since its IPO in August last year. The company raised
$185 million ahead of the listing after strong demand allowed it to
price the offering 8% above the top end of the indicated range.
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