GCL Silicon has started investor education in the US and, while it has yet to set a definitive timetable, sources say it could kick-off formal marketing and bookbuilding at the end of this week with the aim of pricing the deal in the first week of August. The stock will trade on the New York Stock Exchange.
Sources familiar with the deal earlier said that the company needs to raise about $750 million towards its planned capital expenditure, which exactly matches the filed-for issue size when adding in a 15% greenshoe. Given the capex needs, the base offer is expected to be all new shares, but some of the pre-IPO shareholders, which include Deutsche Bank, Trustbridge Partners, Milestone China Opportunities Fund, Investec Bank and CDH Venture Partners, may sell some of their shares through the greenshoe. Credit Suisse and Morgan Stanley are joint bookrunners for the offering.
Solar power companies listed in the US have been highly volatile this year. Share prices have been underpinned by high oil prices, but at the same time investors have remained sceptical as to whether the companies will be able to deliver on their plans amid a continuing û albeit decreasing û shortage of polysilicon (a raw material crucial for the production of solar cells) that is causing bottlenecks in the upstream part of the value chain. The market reaction towards companies that have posted strong earnings has been highly favourable though, with double-digit percentage gains not unusual in the wake of such ôproofö of their continuous growth. As the availability of silicon improves and a lot of new capacity comes on board this year and next, the sector is, however, expected to become increasingly competitive.
Even so, sources say GCL Silicon is in a good position to capture a piece of the action, as its main business is to supply highly coveted polysilicon, which it makes at a production facility in ChinaÆs Jiangsu province. It also intends to move further down the supply chain by starting to manufacture wafers in the third quarter of 2009. Wafers are the next step in the value chain before the actual production of solar cells and panels.
GCL Silicon has a short track record, having begun operations in July 2006 and having produced its first batch of polysilicon as recently as September 2007. However, it is already the largest supplier of this raw material in China and among the top three or four players in the world together with companies like US-based REC, Germany-based Wacker Group and Korean newcomer DC Chemical. By March 2010, GCL Silicon plans to have a production capacity of 13,500 tonnes of polysilicon, and by 2011 it should reach 24,000 tonnes, up from 1,500 tonnes in March this year. It isnÆt yet utilising this capacity in full though, with a production of 302 tonnes in the three months to March and 359 tonnes in the three months to June.
In also plans to build a wafer production facility with 1.9GW of capacity that should be completed by the end of 2010. It has recently begun selling wafers that are produced through tolling agreements with third-party manufacturers. The company will continue to rely on these suppliers until it has sufficient in-house wafer capacity to go it on its own. It currently supplies wafers through long-term contracts to players like JA Solar and Solarcell, and has long-term supply agreements for polysilicon with Trina Solar and Solarfun Power Holdings.
Among the key investment arguments, sources say, are: the high quality of GCL SiliconÆs product; the fact that it is such a large deal; and a compelling valuation û although the latter wonÆt be finalised until after the company receives feedback from the investor education process. It will likely also be only the fourth IPO in the US by an Asian company this year after education play ATA; solar wafer manufacturer Renesola, which was already listed in London but completed a US listing and public offer in late January; and China Distance Education Holdings (CDEL), a provider of online test preparation courses, which is currently in the market with an IPO of up to $96 million that is scheduled to price next week.
GCL Silicon posted a loss of $2.9 million in 2007 on revenues of $40.8 million, but turned around in the three months to March when it reached a net profit of $34.7 million on revenues of $81.5 million.
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