The company initially offered 3.8 million American depositary shares at a 2% to 7% discount to ThursdayÆs close of $43.74. It ended up selling 4.8 million ADS û all backed by primary common shares û at a price of $41.75, or a 4.55% discount. At the final size, the offering accounted for about 4.5% of the existing share capital.
The deal was launched an hour before the US market opened on Friday and was covered in 20 minutes. However, the lead managers werenÆt able to close the books until about 30 minutes into the trading session as they had to wait for the necessary regulatory approvals to come through, which meant the price had to be fixed while the stock was moving. But investors stuck with the deal and surprisingly didnÆt show much price sensitivity. A source said the price could have been fixed at the top, although that might have been a bit too provocative in light of the panic sell-off in US markets earlier in the week.
The order book was said to have included about 40 accounts and comprised existing investors as well as solar power specialists and those who were chasing liquidity. Given the timing of the deal (kick-off was at 8.30pm Hong Kong time), the buyers were predominantly US-based, but with some interest from Europe and Asia.
LDKÆs share price fell 5.3% to $41.44 in FridayÆs trading and while this meant it closed below the placement price, the share price did recover from an intraday low of $39.15, suggesting that investors were still prepared to support the stock. The fact that the company was raising money primarily to fund capacity expansion likely worked in its favour here. LDK did underperform the market though, with most other solar power plays gaining ground and the Dow Jones index rallying 3.4%, following a 3.9% gain on Thursday.
The initial fall in the companyÆs share price may have been a reaction to the unusual way in which the shares were sold. US follow-ons are typically marketed during at least one, and often several, trading sessions against a moving share price. Investors may also have been surprised by the fact that the deal was launched on a Friday. According to the source, this is the first SEC-registered block trade to be done on a Friday morning ever.
This unusual approach brings further evidence that a bit of innovation, and indeed a lot of flexibility, may be needed to get deals out the door in the current environment which continues to be marked by violent day-to-day swings in global stock markets. The acute confidence crisis that had plagued the market for about a week-and-a-half and ultimately forced Lehman Brothers to file for bankruptcy protection, Merrill Lynch to agree to sell itself to Bank of America and insurer AIG to accept a costly government loan facility, appeared to have eased off on Thursday and Friday in response to the US governmentÆs proposed $700 billion rescue package, but there is still no telling how long the current rebound will last. Recently no rally has lasted more than a couple of days, adding to the urgency to grab the window when it appears.
LDK mandated Goldman Sachs, J.P.Morgan and UBS for a capital raising exercise some time ago, and the first few filings on Friday morning suggested that the three banks would all be involved in the deal. However, when it was launched, J.P.Morgan was no longer on the ticket. No explanation was given, but it is possible that the bank didnÆt feel comfortable to support a deal at such short notice. Goldman and UBS acted as joint bookrunners.
LDK said it would use 60% of the proceeds towards the ongoing construction of a polysilicon manufacturing plant, which was begun in August 2007 and marks its first move upstream in the value chain. Polysilicon, which is used as a raw material in solar wafers, has been in short supply for the past couple of years and by starting to produce its own, LDK will go some way towards securing its future needs. It expects to have an aggregate installed annual production capacity of approximately 7,000 tonnes of polysilicon by the end of 2008 û allowing it to produce 100 to 350 tonnes of polysilicon this year, and 16,000 tonnes by the end of 2009. Aside from these efforts to produce its own raw material, LDK believes it has enough inventory and commitments from suppliers to satisfy substantially all of its estimated requirements through 2008.
Another 30% of the proceeds will go towards the expansion of its production capacity of multicrystalline wafers from 880MW as of June 30 to 1,100MW by the end of this year and approximately 2,000MW by the end of 2009. It will also begin commercial production of monocrystalline wafers in the fourth quarter this year and expect to reach an annual capacity of 200MW by the end of 2009. Monocrystalline wafers have a higher efficiency than their multicrystalline equivalents, but cost more to produce.
LDK has experienced strong earnings growth since it made its first commercial wafer sale in April 2006 and in the six months to June, its bottom line improved by 274% year-on-year to $199.4 million. The share price remains volatile though and, while it has recovered from a 2008 low just below $20 in March, it is still down 40% from a year ago. The 16% bounce on Tuesday through Thursday last week came on the back of a 7.5% drop on Monday.
The successful outcome of this deal may improve the chances for solar cell manufacturer Gintech Energy Corp to complete its planned sale of about $150 million worth of global depositary receipts. The Taiwan-listed company set off on a nine-day roadshow on Wednesday last week and if the response is positive, it will conduct a one-day bookbuilding at the end of it. ABN AMRO and UBS are the joint bookrunners.
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