China Investment Corp (CIC) on Thursday raised HK$3.12 million ($402 million) from the sale of a 7.8% stake in Hong Kong-listed GCL-Poly Energy Holdings. It was the second sell-down by the Chinese sovereign wealth fund in the company in seven months and, like last time, the transaction came on the back of a spike in the share price.
GCL-Poly, which makes polysilicon and wafers for solar cells, has gained 12.8% in the past two sessions on the back of rising polysilicon spot prices and a positive industry outlook. The share price is up 34.3% since CIC started to trim its stake in the company in June last year.
Even so, it was able to achieve a significantly tighter discount this time. Indeed, the offered discount of 6.0% to 7.8% looked ambitious, not just in light of the recent gains but compared to the 11.4% that it priced at last time.
Several investment banks bid for the transaction, which typically means that the discount will be pushed lower, but sources said the winning bid from China International Capital Corp (CICC) was not that much lower than the rest. According to one source, CICC was tighter on fees rather than on the discount.
The Chinese bank has done three smaller placements in the renewable energy sector in the past 12 months and likely had a good sense of who would be interested to buy the shares and at what price.
CIC sold the same number of shares (1.2 billion) as in June but, thanks to the share price gains in the past seven months and the tighter discount, the deal size was 40% bigger. The sale will reduce CIC’s stake to about 4.6% from 12.35%.
The shares were offered at a price between HK$2.60 and HK$2.75, which as noted translates into a discount of between 6% and 7.8% over Thursday’s closing price of HK$2.82. Not surprisingly, the price was fixed at the bottom of the range for the maximum discount of 7.8%.
Even so, the placement price of HK$2.60 was well above the HK$2.50 where the stock closed as recently as Tuesday this week.
The deal launched at about 5:30pm Hong Kong time and was fully covered after about two hours. The demand was particularly strong among long-only investors and the allocation was heavily skewed towards high-quality long-only global funds, the source said. In all, about 60 accounts came into the transaction.
The buyers came from Asia as well as Europe and the US. The participation from the latter region was lower though, as the orders books closed early in the US morning.
CIC paid about $710 million for a 20% stake in GCL-Poly in November 2009 and through its two sell-downs it has now recuperated a gross $689 million, not counting dividends.
The first six months after its investment the share price was drifting lower, but then it took off and in April 2011 it hit a record high of HK$5.55 – more than three times the HK$1.79 per share that CIC had paid.
The stock has been highly volatile since then as the solar power industry became plagued by over-supply and changing government subsidiaries globally. It hit a low of HK$1.13 in September 2012 but gained 54% last year as analysts started to suggest a brighter outlook for the industry and the Chinese government increased its focus on renewable energy.
The fact that CIC’s remaining stake will fall below the 5% disclosure threshold following Thursday’s transaction means that it will no longer have to alert the market to any further sell-downs, giving it a bit more flexibility to dispose of the shares in smaller portions in the open market. That would allow it to take advantage of sudden share price gains without having to concede a discount.
It has agreed to a 60 day lock-up before it can sell any more shares, however.
GCL-Poly’s share price fell 6% to HK$2.65 in the morning session on Friday after the sell-down, which left it 1.9% above the placement price.
In addition to its polysilicon and wafer business, GCL-Poly also owns or has invested in 18 cogeneration power plants, two incineration power plants, one wind power plant, one rooftop solar project and two solar farms in Jiangsu province and in Tibet.
On the final day of 2013, the company announced that the 100 megawatt photovoltaic power plant in the Ningxia desert in which it owns 51%, and the 60 megawatt second phase of a photovoltaic power plant in Shanxi, have both been connected to the grid and started commercial operations.
