US private equity firm TPG Capital is set to make its first investment in China’s solar power industry after agreeing a deal to pay up to HK$1.17 billion ($150 million) for a maximum 21.6% stake in Comtec Solar Systems Group.
The deal gives TPG an interest in one of China’s most promising growth industries. Comtec makes monocrystalline solar ingots and high-quality wafers in Shanghai, and sells most of its products to solar-cell manufacturers. The company was founded in 1999 and started making wafers in 2004.
TPG is making its investment through convertible bonds with warrants in Comtec. The convertible bonds have a face value of HK$780 million and carry no interest. They convert into Comtec shares at any time within five years from the date of issue, at a price of HK$3.90 per share. If the CBs are not converted, Comtec will redeem them at par.
The price represents a discount of about 6.02% over the closing price of Comtec’s Hong Kong-listed shares on April 18, the last day they traded, and a discount of 3.94% over the 10-day average price of HK$4.06. The bonds will give TPG a stake of 14.99% in Comtec.
The warrants have a strike price of HK$4.10 and can be exercised any time up to five years after issue. The price represents a discount of about 1.2% over the closing price on April 18. If exercised in total, the warrants will give TPG another 6.66% equity interest in Comtec for an outlay of HK$390 million.
The long-term interest of TPG in Comtec is evidenced by the fact that neither the CBs nor the warrants are being listed on the stock exchange in Hong Kong, where Comtec itself has been listed since 2009.
“We welcome the investment from TPG Capital and see significant upside from TPG’s financial and operational value-add,” said John Zhang, chairman of Comtec in a written statement. “With TPG’s proven track record of helping companies to achieve dramatic success, we see a bright future for the continued profitable growth of Comtec Solar and believe a partnership with TPG is highly complementary to our existing strategy.” TPG has made a number of investments in the technology sector, including equity stakes in Freescale, Lenovo, Avaya, Alltel and others.
Comtec intends to use the HK$780 million it is raising from the CBs for expansion capital. The additional funds raised, if the warrants are exercised, will be deployed towards working capital.
Along with its investment, TPG has negotiated the right to nominate two directors to the board of Comtec, a right it intends to exercise.
Nomura worked with TPG on the deal. Comtec did not have an adviser. Sources said Nomura brought TPG and Comtec together because the solar power company fits the investment profile TPG has articulated. The deal has taken around four months to put together, added the source.