Renesola completes US listing in tough market

The London-listed solar power company prices its US share sale at a 9.8% discount, while E-house kicks off marketing for a follow-on placement of about $150 million.
Renesola, which is already listed on LondonÆs Alternative Investment Market (Aim), started trading on the New York Stock Exchange last night after successfully completing its first sale of American depositary shares (ADS).

The Chinese company, which makes wafers that are used to produce solar cells, sold 10 million ADS at a price of $13 apiece for a total deal size of $130 million. Credit Suisse and Deutsche Bank were the joint bookrunners. The price translated into a 9.8% discount to MondayÆs closing price in London of ú14.41, after taking into account the exchange rate and the fact that each ADS accounts for two ordinary shares. The company had indicated that the price would be set within a range of a 10% discount and a 5% premium versus the London close.

Renesola, like other solar power stocks, has been under intense selling pressure since the beginning of the year as investors have been offloading stocks that are seen as a bit riskier amid concerns of a potential recession in the US. The sector decline forced Solargiga Energy Holdings to postpone its initial public offering in Hong Kong over the weekend as investors viewed its relative valuation as pricy given that everything around it was falling. The company, which makes wafers and ingots, had already lowered its indicated price range by about 10% before entering the final week of bookbuilding.

Renesola was in a better position since it was pricing its US share sale off a moving price target. This meant that the valuation of the stock on offer was coming down together with the rest of the sector, leaving the relative value unchanged. According to a source, the final price of $13 values Renesola at about 11 times its 2008 earnings, compared with an indicated 15.4 to 18.4 times for Solargiga.

While this was good news for investors, it also meant that the company was able to raise a lot less money than initially planned as a result of the decline in its share price.

At the time of pricing (after the close of London trading on Monday) RenesolaÆs Aim-listed shares were down 18.5% compared with where they were when the company made its first filing to the US regulators about the ADS sale on January 9. Had the company been able to sell the shares based on that price - ú4.45, or the equivalent of $17.56 per ADS - it could have raised as much as $175.6 million assuming an unchanged discount.

The deal does include a 15% greenshoe, which could increase the total deal size to $149.5 million.

RenesolaÆs share price fell a further 8.2% to ú33.30 in London trading yesterday following the pricing of the ADS offering. The shares had held in the range between 5% and 6% lower for most of the session before extending the losses in the final hour of trading. The ADSs fared a lot better in New York, holding about the issue price for most of the day and closing virtually unchanged at $12.99. The stock reached a high of $13.73 in the first half hour.

Of the total ADS on offer, 92.1% were backed by new shares issued by the company. A bit more than half of the net proceeds will be used to expand its solar wafer manufacturing capacity and to purchase equipment for its new facilities, while most of the rest will be invested in its first polysilicon plant which started trial productions this month. The plant, which is set up as a joint venture, is expected to begin commercial production in the first quarter. The estimated output for 2008 is about 200 to 300 tonnes. Polysilicon, which is a raw material used for producing wafers, is in short supply globally and securing enough of this material is one of the key challenges facing companies throughout the solar power value chain.

In the listing document, Renesola said its expansion into upstream polysilicon manufacturing is aiming to ôenhance its competitive advantage as a low-cost producer and to secure a reliable long-term supply of feedstockö.

The company is in the process of expanding its annual manufacturing capacity of ingots to 645MW by the end of 2008 from 378MW at the end of 2007. It will increase its solar wafer capacity to approximately 585MW from 305MW at present.

Renesola was also likely helped by the fact that it has already been listed for a while, which means most investors who are interested in the solar power or alternative energy sectors are already familiar with the stock. There is also research available from several banks. In addition to that, Renesola is a much larger company than Solargiga. Size, or more to the point û liquidity, is something that investors tend to value when markets are volatile since it makes it easier to get out if necessary. Including the New York-listed shares, Renesola will have a market cap of about $1.5 billion, compared with about $880 million for Solargiga, based on the bottom of the price range.

The fact that most of the shares were primary shares was likely also seen as a positive.

ôIt is difficult to sell anything with a lot of secondary shares at the moment. Investors want to see their money being used to invest in new growth, not to end up in the pockets of other shareholders,ö one source says. ôAlso, whenever existing shareholders are selling shares it always raises some question marks.ö

According to sources, the deal was close to two times covered and included some anchor-type investors. In all, the book included about 50 orders from a mixture of long-only names, hedge funds and specialist sector funds.

The fact that the new shares will be listed in New York allowed the company to broaden its investor base to include US accounts. Since many global funds wonÆt by stocks that are listed on the Aim market, the possibility to trade the stock on the NYSE should help improve the liquidity and also the companyÆs profile. The ADSs are fully fungible with the Aim-listed shares so in theory, we could see part of the London-listed stock migrate to the US. Renesola listed on Aim in August 2006 at a price of ú1.50 per share.

The fact that Renesola was able to complete the sale despite the quite tough and highly volatile market environment at present should be comforting to E-House (China) Holdings, which kicked off the marketing of a follow-on share sale on Monday. The Chinese real estate services company, which listed on the NYSE in August last year, is aiming to raise close to $150 million - based on the current share price - through the sale of 7 million ADS. Six million of the shares on offer are primary shares.

Credit Suisse and Merrill Lynch are joint bookrunners for that offering, which is expected to price after the close of US trading on Thursday.
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