The deal, which is only the third equity offering of size by an Asian company listed in the US this year, looked like it might be a real challenge as the share price tumbled 29% in the first five days of the roadshow, but a 20% rebound in the days before pricing made a difference. Some of those gains, which included a 12.4% rally on Monday, were believed to have been the result of a short squeeze after the bookrunners went out with a message that the deal was covered, although the entire solar power sector did enjoy a rebound on Monday.
Renesola spent two-thirds of last nightÆs session in slightly lower territory, but recovered in the final two hours to finish 3.5% higher at $21.49 û or 4.8% above the deal price. The gains bucked the negative sentiment in the broader market where the Dow Jones index lost 1.1% and closed at a three-month low just above the 12,000-point mark.
According to a source, the allocations were quite concentrated with the top 10 accounts taking the majority of the deal. In total about 50 or so accounts participated in the offering. The 14.7% drop in the share price during the eight-day marketing period may have contributed to the buying interest, but even more important perhaps was the fact that investors who bought into the company when it listed in the US in late January have made money on the stock. At its highs of $27.80 in mid-May, Renesola was up more than 100% from the IPO price of $13 and although it has fallen significantly from there in recent weeks amid a volatile overall market, it was still up 60% when the follow-on was priced after the New York close on Tuesday.
The final price, which was set at $20.50 versus a close on the day of $20.77, translated into a 2008 price-to-earnings ratio of 16.2 times (based on consensus estimates), which marked a 48% valuation premium to the P/E of about 11 times that it achieved in the IPO. The fact that the company, which is also listed on LondonÆs Alternative Investment Market (Aim), was able to pull that off in such a challenging market is a clear testament to RenesolaÆs strong market position and revenue growth. The company is also active in the upstream part of the solar power value chain where there is a shortage of supply, leading to good pricing power for the producers.
In the first quarter, the company recorded net revenue of $123 million, which was 28.0% higher than in the previous quarter, and a 242% improvement from the first quarter of 2007. The company said this 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.
As a result of the sell-off in recent weeks, some observers say Renesola is again attractively valued versus some of its comparables, especially on a 2009 P/E basis. According to Bloomberg data, Renesola is quoted as a 2009 P/E multiple of 10.3, while fellow wafer manufacturer LDK Solar trades at 11.1 times. Solar cell manufacturers Suntech Power and Solarfun Power are trading at multiples of 16.1 and 17.1 times respectively.
The deal comprised 9 million ADS plus a greenshoe of 1.35 million additional shares. Of the base offering, 90.5% or 8.15 million ADSs were new, while the remainder was 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, and will boost the free-float to 53% from about 45%. Each ADS accounts for two common shares.
Credit Suisse and Deutsche Bank were the joint bookrunners. The same two banks arranged the $130 million US IPO in January.
Credit Suisse, together with Merrill Lynch, also arranged a $102 million follow-on for real estate agency and consulting services company E-House in early February, which aside from RenesolaÆs two offerings, is the only other equity deal greater than $50 million by a US-listed Asian company this year. However, Solarfun sold $117.6 million worth of ADSs together with a $150 million convertible bond issue in January, where the ADS portion was sold with the sole purpose of being used as a hedging tool for the CB, and Suntech Power and JA Solar have both raised fresh capital this year from the sale of convertible bonds.
Renesola said it will use approximately $70 million of the proceeds 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.
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