Motech completes GDR offer at 2.3% discount

The solar cell manufacturer raises $210.8 million to diversify upstream through a deal that will significantly increase its international ownership.
Solar cell manufacturer Motech Industries has raised $210.8 million from its first ever sale of global depositary receipts after pricing the fully marketed offering at a 2.3% discount to its underlying Taiwan-listed stock.

Motech's share price fell 2.9% on Thursday before the GDR was priced, closing below the NT$400 level for the first time in three-and-a-half months, which at first glance would suggest a lower price for the issuer. However, the bookrunners cleverly tightened the guidance after the local close to incorporate a slightly higher absolute price range as initially envisaged.

Credit Suisse and Morgan Stanley, which jointly led the deal, told investors on Wednesday about their intention to price the deal at a 4% to 7% discount to ThursdayÆs closing price in Taiwan, which implied a minimum price of NT$382. But after ThursdayÆs drop they adjusted that downwards to 0% to 4% for a minimum price of NT$383.

In the end, the GDRs were priced at $11.71 apiece, which translates to NT$390 or a 2.3% discount to the close of NT$399.

Sources say the deal was more that three times covered with about 80 participating accounts, suggesting there is still demand for solar power companies despite the bottleneck issues related to the shortages of silicon and wafers. Investors based in the US and Asia each bought about 40% of the deal, with the remaining 20% ending up in Europe.

According to a banker, this represents one of the tightest discounts for a marketed GDR by a Taiwanese company following Chimei OptoelectronicsÆ $330 million GDR in December 2006, which was priced flat to the most recent domestic close. The average discount for all Taiwan GDRs since 2005 (excluding Motech) has been 5%, the banker says.

The fact that the local share price fell only 2.1% during the 10-day roadshow and even outperformed the average decline of 5% for other solar power companies during this period, makes it an even better outcome for the company. The share price did, however, bounce back again in the wake of the pricing on Friday, finishing the week with a 2.6% gain to NT$409.50, which suggests there is likely to have been at least some technical sell-off related to the pricing.

Motech sold 18 million GDRs, or 12.5% of the company, to raise cash for a planned expansion into the production of its own polysilicon and wafers. This will make Motech, which is currently the largest solar cell manufacturer in Taiwan, less dependent on market purchases of these key raw materials and should eventually add to its bottom line, company watchers say.

There is a greenshoe which may be used by the bookrunners to stabilise the price movements in the aftermarket, but since Taiwan regulations stipulate that a greenshoe has to be backed by secondary shares if it is to be used for that purpose and the controlling shareholder had no interest in selling down any more than necessary, it is quite small at only 700,000 GDRs, or 3.9% of the original deal.

The base deal is all backed by new shares with each GDR equal to one common share.

Motech trades at a valuation discount to its sector peers, but as the companyÆs international ownership increases û from about 19% before the GDR to around 31.5% - there could be room for a re-rating, one observer says.

Based on its current price, Motech is valued at a about 21.2 times its 2007 earnings on a US GAAP basis. This compares with 34 times for Suntech Power, 44 times for Q-Cells and 68 times for Sun Power, all of which manufacture either solar cells or modules. It does, however, trade on par with Taiwan-listed E-Ton Solar Tech and at a slight premium to Chinese players Canadian Solar and JA Solar, which have listed in the US over the past five months and currently trade at 2007 P/E multiples of 18-19 times.
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