LDK Solar raises $149 million from follow-on

LDK Solar, a vertically integrated manufacturer of wafers and other products for the solar power industry, has raised $148.8 million from a follow-on share sale that was completed before the US market opened yesterday. The deal was well received and the share price finished well above the placement price in US trading overnight.

Operating in a capital-intensive industry, LDK is a frequent issuer that is known to investors and this deal makes it the first Chinese company listed in the US to complete a new share isse of size this year. The company, which is based in Xinyu City in China’s Jiangxi province, last raised new equity in December 2009 and before that in September 2008.

The overnight offering came after LDK’s share price gained 19% over the course of five days after the company raised its outlook for the fourth quarter of 2010 and for the full-year 2011, with regard to revenues, shipments and solar cell production. However, some of those gains were pared back on Tuesday and Wednesday this week when solar power stocks sold off amid concerns that Italy may cap solar power installations following a report that it may reach its 2020 installation target as early as this year. LDK lost a combined 9.8% during those two days after closing at a 52-week high of $14.44 on Monday.

The share sale was announced and launched after the market closed on Wednesday, when the company said it was looking to sell 12 million American depositary shares, or 9.1% of its existing share capital at a price between $12.10 and $12.60, for a maximum deal size of $151.20.  The price represented a 3.2% to 7.1% discount versus Wednesday’s closing price of $13.02.

The bookbuilding, which was jointly led by Citi, Deutsche Bank and UBS, gained momentum straight away and, according to a source, the deal was already three-quarters covered at the beginning of the Asian trading day. The management then held just over a handful of one-on-one meetings with investors in Hong Kong, which translated into quite good demand from Asian investors as well. Some European accounts also came into the transaction later in the day.

At about 7am New York time on Thursday, or an hour before the order books closed, investors were told that the deal would not price below $12.30, suggesting that the offering was well covered by then. The final price was fixed just above the mid-point at $12.40 for a 4.8% discount.

Close to 80 investors participated in the transaction, which is quite a large number for an overnight trade in the US. The buyers included a few existing shareholders and hedge funds.

The demand for LDK stock may have been given a boost by President Barack Obama’s State of the Union address on Tuesday evening, in which he called for 80% of US electricity to come from clean energy sources by 2035. To make that happen, he proposed reverting billions of taxpayer dollars that are currently given to oil companies to support innovation. “Instead of subsidising yesterday's energy, let's invest in tomorrow’s,” he said.

LDK’s share price fell 0.8% in US trading overnight, but finished 4.1% above the placement price at $12.91 – a sign that investors believe the company will be able to convert the money raised into higher earnings growth. In the SEC filing it didn’t specify its plans for the cash, however, saying only that it will be used for general corporate purposes.

The new money raised will add to about $700 million of cash on its books as of the end of last year. However, LDK has a good track record when it comes to growth. Having started out as a manufacturer of solar wafers that are used to make solar cells, it has expanded its business to deliver high-quality, but low-cost photovoltaic products throughout the value chain, including polysilicon, modules, systems and solutions. It has also grown into the world's largest producer of multicrystalline solar wafers.

In its revised outlook last week, LDK said it expects to have generated between $870 million and $910 million of revenues in the fourth quarter last year, up from an earlier estimate of $710 million to $750 million. The gross margin is seen to have widened to 25% to 27% from an earlier estimate of 24% to 26%. 

Similarly, for 2011 it now expects revenues in the range of $3.5 billion to $3.7 billion, up from a previous estimate between $2.9 billion and $3.3 billion. The gross margin is expected to be between 23% and 28%.