Neo Solar prices GDR at maximum 10% discount

Taiwanese solar cell manufacturer Neo Solar encounters significant headwinds, including a 20.9% drop in its share price during marketing, but is still able to raise $132.4 million.
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The solar cells manufactured by Neo Solar are used to make solar modules and systems (AFP) </div>
<div style="text-align:left;"> The solar cells manufactured by Neo Solar are used to make solar modules and systems (AFP) </div>

Neo Solar Power Corp, a Taiwanese maker of high-efficiency solar cells, has raised $132.4 million from the sale of its first ever global depositary receipts (GDRs).

The solar power sector has been hard hit this year amid significant uncertainty about government subsidies in various markets and the outlook for the global economy in general, and the eight days when Neo Solar was marketing its transaction were no exception. In fact, when the deal priced after the US close on Wednesday, the share price had lost 20.9% since the management hit the road on July 4. It has fallen 48% from its 2011 high in February, which is not too different from the broader solar power sector.

Even with the drop, the GDR price was fixed at the maximum 10% discount versus the closing price of the company’s Taiwan-listed common shares, suggesting investors are not entirely confident that the sector’s problems are over. Neo Solar also chose to sell only 20 million GDRs, the bottom end of the 20 million to 24 million range that it indicated at the outset. This was perhaps not too surprising given the sharp drop in its share price, but it meant the company raised significantly less than the $200 million it had initially planned.

A source earlier noted that Neo Solar wasn’t desperate for money, but acknowledged that, like other solar power companies, it needs to continue to expand to stay ahead of the competition as the industry becomes increasingly commoditised. Indeed, the company increased its manufacturing capacity to 1.3 gigawatts in June (from 830 megawatts at the end of March), following completion of a new production unit in Taiwan.

The money raised from the GDR will be used to pay for new machinery and raw materials.

The banks running the deal had originally planned to close the order books on Tuesday, but decided to keep them open a day longer after Neo Solar’s share price — and that of fellow Taiwan solar cell manufacturer Green Energy Technology — went limit down, or minus 6.9%, on the last day of bookbuilding. One banker said they wanted investors to be able to make an investment decision based on a real price. On Tuesday, the bookrunners also told investors that they expected to fix the price towards the wide end of discount range.

The negative sentiment continued on Wednesday, but Neo Solar did avoid hitting the downward limit, finishing down 5.9%, while Green Energy lost another 6.9%. A third company in the sector, Motech Industries, dropped 8.2% on Monday through Wednesday.

Even so, Neo Solar did pick up some incremental orders on the last day. In particular, investors with specific knowledge of the solar power sector were starting to see value in the stock at these levels. The final number of investors was quite small, however — supposedly less than 30. Most of the demand came from Asia, including onshore and offshore Taiwan accounts, although there was some participation from the US as well.

The price was fixed at $6.62 per GDR, which translated into NT$38.26 per Taiwan-listed common share. One GDR is equal to five common shares and based on a current market capitalisation of around $460 million, the GDR issue accounted for about 29% of the outstanding share capital. Based on Wednesday’s closing price of NT$42.50, this resulted in a 10% discount. Domestic investors were a bit less price sensitive, although one source estimated that only about 20% of the order amount came from Taiwan accounts.

The discount is the widest for a Taiwan GDR since Sino-American Silicon Products raised $177 million with the help of Nomura in September last year. Neo Solar also fell more than any other GDR issuer during the marketing. The other three issuers this year have priced at discounts ranging from 5% (Wintek and Catcher Technology) to 7.9% (Farglory Land Development).

With four deals raising a combined $893 million, GDR issuance out of Taiwan this year is already well ahead of 2010 as a whole, when $745 million was raised from five issues, Dealogic data shows.

Credit Suisse and Nomura initially pre-marketed the Neo Solar deal, but they were not comfortable enough to launch it. When it finally did hit the market, Deutsche Bank and UBS were on the ticket.

The company has expanded rapidly since it started operations five years ago and is now one of the top five merchant solar cell suppliers in the world, according to Photon Consulting. It plans to increase its installed annual manufacturing capacity further to 1.8GW by the end of the first quarter 2012. Despite the difficult global environment, Neo Solar recorded a 141% increase in revenues during the first quarter, versus a year earlier, and a 7.1% increase versus the previous quarter. Its net profit grew 10% from the first quarter 2010 to NT$300 million.

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