JinkoSolar Holding on Friday morning Hong Kong time managed to price its US initial public offering at the bottom of its indicated range despite the continuing volatility in global equity markets amid a new round of concerns over the debt situation in Europe.
The deal was small at just $64.2 million, which posed another challenge in an environment in which investors are concerned about liquidity, but a cheap valuation relative to its larger comps enabled the firm to win enough investors over to complete the transaction. Having priced within the original range -- contrary to many other issuers in recent weeks that have reduced their ranges before getting their US IPOs out the door -- JinkoSolar then held its ground in the secondary market.
The Chinese integrated solar power play, which covers the entire value chain from the recovery of silicon materials, through the production of wafers, to solar cells and modules, closed its first trading session 1 cent higher at $11.01 after trading in a range between $10.80 and $11.40 during the session. The Dow Jones index fell 1.5%.
Key to the success of the transaction, sources said, was the fact that Credit Suisse, as the sole bookrunner, was able to get the support from a handful of long-only investors before the actual launch, thus helping to create momentum in the bookbuild.
The low end of the price range was also deliberately set low to attract people's attention and make them take a proper look at the company, although the intention was to be able to move the price towards the top end -- which was considered to be more in line with fair value -- as the deal came together. But while the first part of that strategy worked, the market volatility during the roadshow meant the second part didn't. Consequently, the company was forced to price at the bottom of the $11 to $13 range.
JinkoSolar sold 5.835 million American depositary receipts (ADS), which were all backed by new shares. Each ADS accounted for four common shares and the entire transaction for 26.8% of the share capital.
The final price of $11 translated into 5.1 times this year's projected earnings.
The order book was quite lumpy with no more than 50 investors participating over all. Allocations were said to have been kept tight and almost the entire deal went to US investors.
Aside from the choppy markets, the outlook for the solar power industry also remains somewhat cloudy at the moment after Germany, Spain and Italy have all announced a reduction in their subsidies for solar energy in recent months.
"It is an industry in transition," remarked one banker. "At the moment there are two camps - one that is positive on the fundamentals and another that is trying to figure out what is the right valuation of solar power stocks in this new environment."
And while JinkoSolar derived 57% of its sales from customers in China and another 26% from the rest of Asia last year, compared with just 13% from Europe, its exposure to the latter region is increasing. All but one of its recent contracts have been to customers based in Europe, meaning it is vulnerable to the policy changes in these markets.
Another hurdle for the company to overcome was the simple question of whether investors actually need to own another solar power company from China since there are already quite a few that are listed in the US market. Jinko is also only about half the size of its two closest comparables, Trina Solar and Yingli Green Energy Holding which are also both active across the value chain.
The bookrunners would have been particularly aware of this point since the company had already tried to list in the US in February this year through joint bookrunners Credit Suisse and Goldman Sachs, but withdrew the deal just before pricing after insufficient interest from investors. The cheap valuation would have been a direct result of this; at the mid-point, the price range for last week's IPO translated into a 2010 price-to-earnings multiple of 5.6, while the range set in February valued the company at a P/E multiple of 6.3.
After the failed listing in February, JinkoSolar dropped Goldman from the line-up, retaining Credit Suisse as the sole arranger of the relaunch.
The marketing also changed somewhat this second time around, as the bookrunners chose to focus its efforts on the US which is home to many specialist alternative energy funds. Accordingly, the entire roadshow was spent in the US, while the first time around the management visited the usual markets in Asia and Europe and also spent one day in Tel Aviv to court one private equity firm in particular that has been supportive of the company in the past.
Among its attractions is the fact that JinkoSolar doesn't have any long-term polysilicon contracts. Many other solar power companies signed long-term contracts in recent years as a way of ensuring sufficient supply of polysilicon - a key raw material for making wafers - amid a shortage that lasted for several years and worked as a bottleneck for the entire industry. This is working in its favour now that prices are coming down and should have a positive impact on its margins over the next few quarters.
