Chinese solar power equipment manufacturer Trina Solar early on Wednesday morning (Hong Kong time) completed a follow-on equity offering, raising a total of $129.4 million. The deal came as the company made a series of significant announcements relating to its second-quarter earnings and a third-quarter forecast.
And US-listed Trina was not the only company tapping into the current positive sentiment among investors yesterday. Last night, Hong Kong-listed Techtronic Industries also raised $78.1 million via a top-up placement.
The base deal size of the Trina placement consisted of 4 million American depositary shares (ADS), each representing 100 ordinary shares in the company. The price was fixed at $28.75 per ADS, which represented a 3.9% discount to Tuesday's closing price of $29.92. One source said that since the deal didn't go out with a price range, and was being marketed against a live price, investors didn't expect a large discount.
There was, however, sufficient demand to upsize the offering to 4.5 million ADS, bringing the base deal size to $129.4 million from the initial $115 million.
The book was over four times covered, and filled with what was described as a mix of long-only accounts and hedge funds. Investors were mostly from the US, with approximately 25% of the demand coming from Asia. Credit Suisse and Goldman Sachs acted as joint bookrunners.
Trina's vertically integrated business model means it is involved throughout the solar power value chain -- from the production of monocrystalline and multicrystalline silicon ingots, wafers and cells through to the manufacturing of photovoltaic modules.
Of the money raised, the company will use up to $30 million to pay off debt -- specifically, it will help reduce the $120 million worth of 4% convertible senior notes that it issued in July last year. The remaining cash will be used to expand its facilities, and for general corporate purposes.
The company's ADS have performed extremely well over the past few months. In March, the shares were trading at around $7.50 each. On Friday last week, the share price reached $31, an impressive performance in what are already strong markets.
The share price had a volatile session on Tuesday when the deal was in the market, falling as low as $27.75 at one point before finishing the day five cents up at $29.92. However, it did drop 6.6% to $27.94 on Wednesday after the deal was all done, underperforming the broader market and closing 2.8% below the placement price at $27.94.
On Monday, the day that the placement was launched, the company made two significant announcements. First, it revealed some key metrics for the second quarter: total revenue is expected to be between $148 million and $152 million; and module shipments reached between 63MW and 65MW, a tighter range than the company's previous guidance of between 60MW and 65MW. With regard to gross revenue guidance for the period, Trina said it expects gross margins of between 26% and 28%, significantly wider than it earlier expectations of 18% to 20%.
The second set of announcements looked ahead to the third quarter, when it expects to ship between 90MW and 110MW of equipment. It maintained its full-year shipment guidance of between 350MW and 400MW, but said it will increase its production capacity to 600MW by the end of the year, from the current 400MW.
A Macquarie research report said that the announcements "provide further evidence that [Trina's] impressively low cost structure will allow the company flexibility to price aggressively in order to take share in a number of European markets as well as to win business in the emerging US and Chinese markets." The company will "surprise" on the upside as its cost improvements are beating analyst expectations, said the report.
Trina is a solar favourite for Macquarie, and China Construction Bank (CCB), in a thematic report published last week, described the company as a "hidden diamond" in the sector. Like Macquarie, the Chinese bank cited Trina's low cost structure, as well as its strong earnings outlook.
More generally, CCB is optimistic about the Chinese solar sector due to a big reversal in the demand for solar power that is driven by the increasing cost of fossil fuels, higher levels of bank lending and government support. It expects demand to grow to 11.2GW in 2011 from around 6GW in 2008 and 2009.
Meanwhile in Hong Kong, the Techtronics placement was also upsized. The deal, which was launched after the market closed yesterday, comprised 60 million primary shares at a fixed price of HK$6.73, which would have allowed the company to raise HK$403.8 million ($52 million). However, the number of shares on offer was increased by 50% to 90 million, allowing for a total deal size of HK$605.7 million ($78 million).
The price translated to a discount of 4.8% versus yesterday's closing price of HK$7.07.
The offering was said to have been comfortably covered even after it was upsized, with sizable orders from a number of large global long-only funds. A total of 47 accounts participated in the trade.
Techtronic makes products used in construction and home improvement. It raised capital partly to reduce debt, with the remainder to be used as working capital. Citi, HSBC and Bank of America Merrill Lynch were the bookrunners.
In other equities news, BBMG Corporation yesterday climbed 56.3% in its debut on the Hong Kong stock exchange. This makes it Hong Kong's most successful initial public offering in terms of first day performance since Alibaba.com rocketed 192.6% in November 2007, according to Dealogic. IPO volume in Hong Kong so far this year stands at $3.4 billion from 17 issues, which accounts for 28.5% of the Asia's total deal value.