The integrated solar sector player fell 4.5% to $10.50 after fixing the price of its American Depositary Shares at $11 apiece. The share price didnÆt get higher than $10.98 in the secondary market, and the close was only two cents above the intraday low of $10.48, which is bound to create further uncertainty going into this week.
The drop was by no means confined to Yingli though. In fact, most of the other Chinese solar power companies also fell, losing between 0.9% and 1.4% on the day. The previously ôhotö sector has come under intense pressure over the past week-and-a-half after first quarter earnings revealed a sector-wide decline in selling prices and contracting margins.
During YingliÆs roadshow, sector leader Suntech Power fell 8.2%. Trina Solar, which is the only other semi-integrated player among the Chinese solar power companies and was itself in the market raising funds through a follow-on offering, dropped 22%, and smaller solar cell and module maker Solarfun lost 31%.
Wafer manufacturer LDK Solar, which completed a $470 million IPO a week ahead of Yingli, has slipped 12% in the first six trading sessions.
That slip among it sector peers meant that YingliÆs IPO price û while fixed at the bottom of the $11 to $13 range û ended up valuing the newcomer at a premium to the existing Chinese players, which at the time of pricing traded at an average 2008 price-to-earnings multiple of about 12. Suntech, which has a bit of a special status among US investors because of its leading position in the solar cell and module business and its first-mover advantage in the US market, was well above that average at 19.9 times.
Yingli, which is an integrated solar sector company active throughout the value chain from the production of wafers to the installation of entire solar PV systems, was priced at 13.5 times next yearÆs projected earnings. Analysts say its integrated approach and a scale of business that rivals that of Suntech means the company has a stronger market position than many of the other Chinese solar players and should be able to command a higher valuation (although not to Suntech itself). But to price the IPO at a premium in a declining market must still be considered an aggressive move.
Yingli, which was brought to market by Goldman Sachs and UBS, sold 29 million American Depositary Shares, or 22.85% of the company. Each ADS is equal to one common share. Of the total offer, 91.6% is made up of primary shares, while the rest was sold by the chairman and controlling shareholder to refinance a loan.
The companyÆs private equity investors, which include Temasek with a pre-deal stake of 9.3% and Deutsche Bank with 5.3%, will sell shares only if the greenshoe of 4.35 million shares is exercised. The number of shares to be sold by each investor hasnÆt yet been determined, but is likely to be pro-rated depending on their current stake. A full exercise of the 15% greenshoe could lift the total proceeds to $367 million.
Aside from the disappointing first quarter results, sources say the current volatility in the sector û especially among the China-based players û also stems from the large amount of new shares coming to the market in recent weeks. Aside from the IPOs by Yingli and LDK, there have also been a follow-on Trina Solar and a smaller IPO by China Sunergy, which has resulted in a combined fund raising of $1.12 billion.
YingliÆs IPO also bring the total number of Chinese solar power companies listed in the US to nine, meaning investors who want to play the sector now have a lot more to choose from.
ôFrom an investor perspective, the concern is that all these companies are raising capital, all of them are building capex and all of them are having difficulty selling and retaining selling prices. The question is û will this continue?ö one source says. He adds that the market seems split at the moment on whether the downturn in the first quarter in terms of operations was just a seasonality issue or something that is going to affect the bottom-line in the longer-term as well.
Based on the current industry situation with shortages of both polysilicon and wafers, a wafer manufacturer like LDK Solar should be doing very well, however, and the fact that its share price has been slipping ever since the IPO suggests that the current sector decline isnÆt entirely based on fundamentals. Rather there seems to be a fair amount of negative sentiment thrown in as well, making the recent price movements anything but systematic.
YingliÆs integrated approach and its involvement with large customer projects such as the roof of the Kaiserslauten Stadium in Germany, did attract quite a few solar specialist investors, however. Sources say the order book had very good momentum at the beginning of the roadshow before the main downturn. Being well-known in Europe, the company also attracted a greater than usual portion of the demand from here, which made the split between Asia, the US and Europe quite even.
Types of investors were said to have included solar power specialists as well as growth funds and socially responsible funds. Not surprisingly given the current negative sentiment and high volatility in the market, demand from hedge funds and momentum-type investors was modest, the sources note.
There was no information available on the size of the orderbook, but the fact that the bookrunners chose to fix the price within the indicated range, rather than to use an option that allows them to set it up to 20% below the range, suggest there was a sufficent amount of quality demand.
About $38 million of the net proceeds will be used to redeem bonds issued to Yingli Power, which is the vehicle by which the chairman owns his stake in the company, and the remainder will be used to increase the companyÆs equity stake in its operating subsidiary Tianwei Yingli to about 73% from 70.1%.
The money injected into Tianwei Yingli will be used to finance a planned expansion of production capacity and to purchase raw materials. Yingli launched an expansion project in April last year that will increase its annual production capacity of ingots and wafers, PV cells and PV modules to 600MW each by 2010 from 90-100MW at present
According to sources, the company has secured about 90% of the silicon it needs for 2007 and has an ongoing relationship with Wacker-Chemie - one of the biggest silicon suppliers in the world û which is putting it in a good position to obtain the necessary supply in the future as well.
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