Trony Solar's $223 million Hong Kong IPO covered on day one

The Chinese solar power company kicks off bookbuilding for a Hong Kong IPO after abandoning an earlier plan to list on the NYSE. Meanwhile, medical equipment maker MicroPort prices its offering at the top of the indicated range to raise $198 million.

Trony Solar, a Chinese solar power company, kicked off the bookbuilding yesterday for an initial public offering of up to HK$1.73 billion ($223 million) in Hong Kong. The share sale has received strong interest with the deal being fully covered in the afternoon.

The response provides further evidence of investor appetite for renewable energy equities. Last Wednesday, the $400 million US IPO launched by China Ming Yang Wind Power, a Chinese wind turbine manufacturer, was also fully subscribed on the first day of the roadshow. And that's in spite of the fact that Chinese green energy companies, including Trony, have struggled in the overseas primary markets this year.

Trony initially attempted an IPO on the New York Stock Exchange (NYSE) in December last year when it planned to raise as much as $214.5 million by selling American depositary shares at $11 apiece. Unfortunately, the market conditions were weak and Trony postponed the US IPO indefinitely. Last month it decided to scrap the US listing plan altogether and turn to Hong Kong for a share sale. Credit Suisse and J.P. Morgan were mandated to arrange the US transaction.

The Shenzhen-based company started its business in 1993 as a producer of solar panels that were used in solar-powered calculators. Its customers at the time included Casio, the Japanese electronics group. As its business has grown, Trony has gradually expanded into a variety of thin-film solar modules that are built into solar lamps and solar-powered street lights, and more recently are being applied to the external shells of entire buildings. Its gross profit was $84.3 million in the fiscal year ending June 30, according to the company.

Trony’s self-designed gadgets and proprietary production lines allow it to expand manufacturing capacity rapidly and cost-effectively. This advantage, combined with increasing scale and low-cost China-based manufacturing, resulted in an average manufacturing cost of $1.01 per watt for the fiscal year ending June 2010, the company said in a preliminary IPO prospectus. However, it remains to be seen how increasing wages in China will affect its profitability.

The company and its three existing shareholders are offering 385 million shares, or 25.7% of its enlarged share capital, at a price between HK$3.10 and HK$4.50 apiece. That means the company could raise between HK$1.19 billion ($154 million) and HK$1.73 billion ($223 million).

The indicated price range translates into a price-to-earnings (P/E) ratio of 5.61 to 8.15 times, based on 2011 projected earnings. And when based on Trony’s earnings for the fiscal year to June 2011, the P/E ratio increases to 6.5 to 9.38 times.

By comparison, Trony’s domestic competitor, Hong Kong-listed Solargiga Energy, is currently quoted at a 2011 P/E of 18.7 times.

Around 90% of the offering, or 346.5 million shares, are targeted at institutional investors, while the remaining 10%, or 38.5 million shares, will be sold to Hong Kong retail investors. The shares consist of 89.6% primary shares and 10.4% secondary shares.

The offering comes with a 15% greenshoe which, if fully exercised, will allow the company to raise HK$1.37 billion to HK$1.99 billion by selling an additional 57.75 million new shares.

Trony has secured two cornerstone investors -- China Huadian Group and Chen Fashu, the chairman of Zijin Mining -- who have each ordered $15 million worth of shares. Chen is also a major shareholder of Qingdao Brewery, sources said.

The IPO price will be fixed on September 30 and the trading debut is scheduled for October 7. CLSA, ICBCI and J.P. Morgan are arranging the deal.

Meanwhile, MicroPort Scientific, a Chinese medical equipment maker, raised HK$1.54 billion ($198 million) from its Hong Kong IPO after fixing the price at the top of the indicated range over the weekend.

The Shanghai-based company sold 252.74 million new shares, or 18% of its enlarged share capital, at HK$6.10 apiece, the top end of a price range that started at HK$4.60. The deal size could increase to $228 million if a 15% greenshoe option is exercised in full.

The final price range translates to a P/E ratio of 33 times, based on the company's net profit in 2009, which amounted to $27.4 million, according to the company. Its net earnings for the first half of this year are estimated to be about $20.58 million, it said.

Credit Suisse and Piper Jaffray arranged the deal. The trading debut is scheduled for September 24.

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