Renesola ignores challenging market to launch follow-on

The US-listed solar power play is aiming to raise about $170 million. Meanwhile, UOB tries to sell a $38.6 million stake in WuXi PharmaTech at a fixed-price.
Tumbling stocks, weak employment data, soaring crude oil prices, increased chances of a US rate hike and a downgrade to underweight by a major US investment bank û the current conditions certainly aren't the most conducive for a capital raising exercise. But solar wafer manufacturer Renesola appears to be shrugging it all off and on Friday launched a follow-on offering of American depositary shares (ADS) that could raise about $170 million to $180 million, based on current prices.

The marketing will continue for another week with the pricing scheduled to take place after the US close on June 17.

This is the second fund raising exercise for the company this year after its US listing in late January, which may explain the intense selling pressure on the stock since it launched the deal. Based on the decline in the US, the company has lost 19.3% of its market value in the past three sessions, including a 4.4% drop last night when the Dow Jones index staged a modest rebound and ended 0.1% higher. The stock is also listed on LondonÆs Alternative Investment Market (Aim) where it has fallen 20% in the same period.

However, Renesola has had a spectacular run since it hit a closing low of $7.60 on March 20, gaining more than three-fold to a high of $27.80 three weeks ago. And although it has slipped from the peak, it is still up 51% since its New York trading debut at $13 on January 29, compared with many other new stocks that have yet to move into the black this year.

Ironically though, this outperformance, which has been driven by strong end-market demand and high selling prices, was one of the reasons why Morgan Stanley downgraded the stock to underweight last week. Based on the closing price on Aim on June 30, RenesolaÆs shares traded at a premium to nearly all its Asian peers at a 2009 price-to-earnings ratio of 20 times, leaving limited room for further gains, the investment bank said in a research note.

ôFor more upside, the shares would need higher than expected upstream pricing, i.e. prolonged polysilicon shortage, in our view,ö Morgan StanleyÆs analyst team argued. Its new target price of GBP4.20 per share implied 34% downside from the May 30 price and 16.5% based on the US close Tuesday.

The reason why Renesola is taking its chances in the market is obvious û it needs money to fund its growing business. According to the prospectus, it is hoping to raise at least $170 million from the follow-on, of which approximately $70 million will be used to expand its solar wafer manufacturing facilities and for the purchase of additional equipment for its wafer capacity expansion plan for 2008 and 2009. Another $100 million will go towards investments in polysilicon production in 2008 and 2009.

To capitalise on the growing demand for wafers that are used to produce solar cells, the company intends to increase its annual ingot manufacturing capacity to approximately 645MW by the end of this year from 378MW at the end of 2007 and its wafer manufacturing capacity to 585MW from 305MW. By the end of 2009 it plans to have a manufacturing capacity of 1,000MW for both ingots and solar wafers.

In the first quarter, the company recorded a net revenue of $123 million, which was 28.0% higher than in the previous quarter a 242% improvement from the first quarter 2007, which the company said was ôprimarily attributable to an increase in output from (its) expanded production capacity and an increase in the average selling price of wafersö. Net income increased 1.2% sequentially and 160.6% year-on-year to $17.7 million.

Renesola is offering 9 million ADS plus a greenshoe of 1.35 million additional shares. Based on TuesdayÆs closing price, the deal could fetch $177 million, or up to $203 million if the shoe is also exercised. One source says the fact that the deal is marketed without a price range and will be priced at a discount margin versus the underlying shares should make it possible to get it done, despite the jittery market sentiment.

ôThe solar power sector has been very volatile, but this is a solid enough business for people to look at,ö he says.

Aside from the continued strong demand for solar power products in general û as soaring oil prices are prompting more companies to look for other energy alternatives û Renesola has also been attracting interest because of its ability to produce solar wafers from a wide range of silicon raw materials, including reclaimable raw materials, and has also begun to produce its own polysilicon through a joint venture in China, using proprietary low-cost technologies. This means it is suffering less than most of its competitors from the continuing global shortage of polysilicon, which is a key raw material for the manufacturing of wafers.

Of the base deal, 90.5% or 8.15 million ADSs are new, while the remainder will be sold by existing shareholders. Pre-shoe the deal accounts for about 27.8% of the enlarged ADS capital or 13.4% of the enlarged share capital overall. Each ADS accounts for two common shares.

Credit Suisse and Deutsche Bank are the joint bookrunners. The same two banks also arranged the $130 million US IPO in January.

And Renesola isnÆt the only seller that is prepared to take its chances in the current market. Yesterday, SingaporeÆs United Overseas Bank (UOB) was in the market trying to raise $38.6 million from the placement of 2.1 million ADSs in Chinese medical research company WuXi PharmaTech. The deal, which was offered at a fixed price of $18.40 per ADS, was launched after the US close on Monday and was due to close just before the opening yesterday after giving Asian and European investors a chance to participate. Credit Suisse arranged this deal too.

The price equals a 4.9% discount versus MondayÆs close of $19.35. As can be expected after a placement, the stock fell by the same amount yesterday in the wake of the deal, closing 1 cent above the placement price at $18.41.

UOB, which owned 12.7% of WuXi before this transaction, is a pre-IPO investor in the company and was one of the investors due to sell shares as part of a combined follow-one and sell-down that the company filed for in early April. That offering was never launched, however, as the company supposedly didnÆt find the right window amid the volatile market conditions. UOB would have been less worried about the price moving up or down a few dollars, however, as sources say it bought its shares at a very low price and thus is sitting on a sizeable profit either way.

Like many other stocks, WuXi has been on a downward trend since late October when it hit a record high close of $41.28. Despite this 55% drop, however, the stock is still up 31.5% since its IPO in August last year. The company raised $185 million ahead of the listing after strong demand allowed it to price the offering 8% above the top end of the indicated range.
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