Helped by the fact that the initial allocations had to be scaled back quite a bit, investors remained keen on the company when it started trading on Nasdaq last night. At one point the stock was quoted as high as $16.73, or 11.5% above the IPO price, but by 3pm New York time it had retreated to around $15.98 for a more modest 6.5% gain.
Market watchers say investors were drawn to the company because of upbeat prospects for the sector and because it is only the second Chinese solar power firm to list in the US after Suntech Power, whose explosive debut in December 2005 hasnÆt been forgotten û the stock surged 41% on the first day and was up 188% in the first six weeks. Canadian Solar is incorporated in Canada and was founded by a Chinese Canadian, but has all of its manufacturing businesses in China.
Canadian Solar makes solar modules and products and is also involved in procuring silicon through its recycling business. The latter is helping it to ensure a steady supply of silicon û a raw material used for producing solar cells - which has been experiencing a global shortage for most of this year that has limited the potential growth among producers of solar panels and modules.
Adding to its attractiveness, the company is in the process of moving into the manufacturing of solar cells to capture more of the value chain and the available margins.
ôChina is hot and solar power is hot and on top of that the management gave a very solid impression during the roadshow,ö says one source, adding that the stock also appealed to a lot of different types of investors, including alternative energy specialist funds, Chinese funds and small-cap funds.
There was also a significant bias for long-only funds in the book which was likely due to the small size of the offering. The bulk of the buyers were from the US which is also where the company spent most of its time during the roadshow. However, even with eight days marketing in the US, two days in Europe and only one day in Asia, Asia-based investors accounted for about 20% of demand.
All in all, about 300 investors subscribed for stock and based on the final allocations, investors estimated that the deal would have been more than 10 times covered.
Canadian Solar, which was brought to market by Deutsche Bank and Lehman Brothers, was offered at a significant discount to other listed solar power firms and those valuations got even more attractive during the roadshow as its sector peers continued to edge higher in line with the general market. One exception was Suntech, which came down about 3% while Canadian Solar was on the road.
When the price range was set at the beginning of the road show almost three weeks ago, Suntech traded at about 21.5 times its projected earnings for 2007 and most other sector peers were quoted at 2007 multiples between 19 and 24. The final price values Canadian Solar at 16 times the projected 2007 earnings.
The company offered 7.7 million common shares, or 28.2% of the company. There is also a 15% greenshoe that may boost total proceeds to $132.8 million. Of the total, 6.3 million shares, or 82% of the deal, were new shares. The remainder was sold by two private equity investors who still retain shares in the company, according to the prospectus. Five percent of the offer was set aside for directors of the company, employees, business associates and other related parties.
Shawn Qu, the founder and CEO, still holds 50.14% of the company after the IPO while another 21.6% is owned by the three original private equity investors, including a fund wholly-owned by HSBC Holdings.
Suntech Power was up 0.85% at $25.97 in mid-afternoon trading yesterday, which leaves it 73% above its $15 IPO price.
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