Yingli prices US share sale at tight 2.5% discount

The Chinese solar power company raises close to $203 million of new capital for debt repayments, while the chairman realises $39 million by selling a small portion of his holdings.

US-listed Yingli Green Energy's follow-on share sale, which was in the market on Tuesday, was priced at a tight 2.5% discount to that day's close and upsized by the maximum 20% after attracting strong demand both from long-only investors and hedge funds. This resulted in a total deal size of $241.8 million.

As reported by FinanceAsia yesterday, Yingli's share price gained on Tuesday, after the company's chairman and CEO, Miao Liansheng, said that Yingli has experienced "a substantial increase in demand since the start of the year and expects to see at least a 70% increase in shipments in the second quarter" over those in the first quarter. According to people close to the offering, investors also liked the fact that the Chinese integrated solar power company was raising money to repay outstanding debt, including a $50 million loan facility provided by ADM Capital. While it doesn't mature until 2012, the ADM loan carries an annual interest rate of 12.5%, making it a very expensive funding tool.

At one point the stock was up as much as 9.4% from the previous day's close of $13.16, but it retracted in the second half of trading (as did the rest of the market) and finished the session 1.3% higher at $13.33.

When it was first launched during Asian trading hours on Tuesday, the deal comprised 15.5 million ADRs, of which 12.5 million were new. The remaining 3 million were offered by the chairman. When the deal closed at the end of US trading Tuesday, demand was strong enough that the number of new ADRs was increased to 15.6 million. The number of existing ADRs was left unchanged, resulting in a total deal size of 18.6 million ADRs with the new stock accounting for 12.2% of the existing share capital. The deal also includes a greenshoe of 2.3 million shares, or 12.4% of the final deal size.

A source close to the offering said the increase of the deal size had no impact on the pricing and the final price was set at $13 per ADR -- a 2.5% discount to Tuesday's closing price and an even tighter 1.2% discount versus Monday's close, which was the price that stood when the deal was launched and marketed to Asian and European investors.

Taking out the chairman's portion of the deal, which totalled $39 million and will see his stake fall to 37.5%, the final price allowed the company to raise $202.8 million.

The source said more than 100 investors submitted orders, including a number of specialist funds focusing on "clean and green" businesses. The demand came from all three major regions -- the US, Asia and Europe -- and contained a mix of long-only accounts and hedge funds. There were some big orders in the book that helped drive the momentum.

Also helping to drive the interest, the Yingli management was on call throughout the Asian and US trading sessions to speak with potential investors and explain the rationale behind the transaction and the outlook for the business in the current economic environment.

The solar power sector had a tough first quarter as customers were de-stocking, but since then sentiment has been improving on the back of a pickup in orders and hopes that the focus on renewable energy in various government stimulus packages, including those in China and the US, will lead to an increase in demand for solar power products. In late May a UBS research report said China may introduce a second solar subsidiary plan in the third quarter, resulting in a 7% surge in the share prices of Yingli and some of its sector peers like Suntech Power and LDK Solar.

Because it is present throughout the entire solar power value chain, Yingli is viewed as one of the players that is best positioned to take advantage of this and its share price has rallied about 180% since March. However, it did take a tumble in the three days leading up to the placement amid a soft overall market, losing a combined 18.2%. This may explain why the management was keen to get on with the deal now, before the share price corrected even further.

Following Tuesday's strong performance, the stock did retreat in the wake of the placement on Wednesday, finishing 4.35% lower at $12.75 -- its lowest close in more than two weeks.

Deutsche Bank, Credit Suisse and Citi acted as joint bookrunners for the deal. 

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