Yingli launches fourth solar deal in short succession

The Chinese integrated solar power player seeks to raise up to $377 million on the NYSE from the sale of around 23% of the company.
Yingli Green Energy, an integrated player in the solar power sector, has launched the roadshow for an initial public offering on the New York Stock Exchange that aims to raise between $319 million and $377 million.

The offer comes at a time when fellow Mainland solar power companies LDK Solar and Trina Solar are also in the market trying to attract the attention of investors for an IPO of up to $470 million and a follow-on ADR offering of about $315 million, respectively. However, bankers say there should be enough interest to cover all three deals as solar power is still a ôhotö sector in the US as the demand for more green energy is expected to translate into substantial earnings growth û at least for the leading players.

The trading debut last week of small-scale solar cell manufacturer China Sunergy gave a clear indication of exactly how strong that demand is. The company priced its $93.5 million IPO at $11 per share, or above the original $8 to $10 price range, and then saw the share price rally 50% on the first day of trading.

Observers say the IPO valuation at less than 8 times its 2008 earnings was quite generous, however, and made the stock look appealing even though Sunergy is one of the smaller Chinese solar power companies and doesnÆt really stand out from its listed sector peers. Another positive sign, they say, is the fact that TrinaÆs share price has traded up about 3.9% (as of WednesdayÆs close) since it filed for a follow-on ADR offering on May 15 even though the sector as a whole has edged lower in that period. TrinaÆs offering is set to price on May 30, followed by LDK on May 31.

The key attraction with Yingli stems from the fact that it is the first truly integrated Chinese solar power company to go public, which means that not only will it give investors exposure to the entire value chain, but that it has a better control over its margins. The company is also large enough to become one of the dominant players in the sector, observers say.

According to market sources, Yingli is being offered at 2008 price-earnings multiple of 13.4 to 15.5, which is slightly higher than the 2008 P/E of 12-13 times at which LDK Solar is being offered. The fact that Yingli is an integrated solar sector company which is active throughout the value chain from the production of wafers to the installation of entire solar PV systems, while LDK focuses on the production of wafers and ingots should justify a premium, however.

A better comparison is Trina, which started out as a solar module manufacturer but has been diversifying its business with the aim of becoming a fully-integrated player. Although it is significantly smaller than Yingli and only just started to make its own solar cells last month, Trina does trade at about 16.6 times its 2008 earnings. SolarWorld, a well-established European company that is also active in all parts of the solar chain, trades at a 2008 multiple around 25 times.

Some analysts also like to compare Yingli to Suntech Power because of its similar scale, although the latterÆs leading position in the solar cell and module business and its first-mover advantage in the US market does give it a bit of a special status among US investors. Suntech has risen more than 130% since its IPO in December 2005 and currently trades at a 2008 P/E multiple just above 23 times.

Yingli, which is being brought to market by Goldman Sachs and UBS, is offering 29 million American Depositary Shares at a price between $11 and 13 apiece. The deal accounts for 22.85% of the company with each ADS equal to one common share.

Of the total offer, 26.55 million ADS, or 91.6%, are primary shares sold by the company, while the remainder will be sold by the chairman, who is also the controlling shareholder, to refinance a loan. The companyÆs private equity investors, which include Temasek with a pre-deal stake of 9.3% and Deutsche Bank with 5.3%, will sell shares only if the greenshoe of 4.35 million shares is exercised. The number of shares to be sold by each investor hasnÆt yet been determined, but is likely to be pro-rated depending on their current stake.

About $38 million of the net proceeds will be used to redeem bonds issued to Yingli Power, which is the vehicle by which the chairman owns his stake in the company, and the remainder will be used to increase the companyÆs equity stake in its operating subsidiary Tianwei Yingli to around 73.6% from 70.1% (assuming the deal is priced at the mid-point of the range.) The rest of Tianwei Yingli is owned by a unit thatÆs majority-controlled by the municipal government of Baoding.

The money injected into Tianwei Yingli û approximately 252.4 million at the $12 mid-point û will be used to finance a planned expansion of production capacity and to purchase raw materials.

Yingli launched an expansion project in April last year that will increase its annual production capacity of ingots and wafers, PV cells and PV modules to 600MW each by 2010 from 90-100MW at present

According to sources, Yingli has secured about 90% of the silicon it needs for 2007 and has an ongoing relationship with Wacker-Chemie - one of the biggest silicon suppliers in the world û which is putting it in a good position to obtain the necessary supply in the future as well. However, according to the prospectus, the industry-wide shortage of polysilicon resulted in an increase of 185.5% in its average purchase price of polysilicon per kilo in 2006, which shows Yingli is by no means immune to this problem. In 2005 its average purchase price increased by 106.5%.

TrinaÆs follow-on offering is being arranged by Merrill Lynch, Cowen and Co. and Deutsche Bank, while LDK is brought to market by Morgan Stanley and UBS. SunergyÆs IPO was led by Merrill Lynch.
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