Wind power group seeks $1.2 billion from Hong Kong IPO

Xinjiang Goldwind Science & Technology, a leading manufacturer of wind turbine generators in China, started bookbuilding for an initial public offering in Hong Kong yesterday, hoping to raise as much as HK$9.09 billion ($1.2 billion) to fund its new projects.

With concerns over energy shortages and pollution rising, there is growing pressure in China's power generation industry to turn to more efficient and less polluted renewable energy. Beijing has said it wants at least 15% of its energy to come from renewable sources by 2020, and wind power is considered to be the most cost-competitive source of alternative energy in China.

That would translate into vast growth potential for renewable power generating companies like Goldwind. However, it doesn't mean the offering will breeze through the equity markets. Goldwind has to offer its shares at an attractive price compared to its competitors because "people demand discounts on new deals", said a source.  

The Urumqi-based company, which is already listed in Shenzhen, is offering 395.3 million primary shares, or 15% of its enlarged share capital, at HK$19.80 to HK$23 per share. The price range represents a price-to-earnings ratio (P/E) of 18.8 to 21.8 times based on 2010 projected earnings, sources said.

By comparison, Hong Kong-listed wind farm operator China Longyuan Power is trading at 24.2 times its projected earnings for 2010 and Dongfang Electric at 20.5 times, sources said, noting that those two stocks are the best comparables for Goldwind.

The deal comes with a 15% greenshoe option which, if fully exercised, will allow the company to sell an additional 59 million shares and increase the maximum proceeds to $1.3 billion.

"Investors nowadays are very selective with new equities given the current market condition, but Goldwind's offering price range is very reasonable and its target amount is not very ambitious. The market response should be alright," said Peter Lai, an analyst at DBS Vickers.

There are no cornerstone investors participating in the deal and those who have shown interest in the company are questioning whether the development of China's wind power industry is going to be sustainable, and whether the level of government support for the sector is sufficient, according to bankers involved in the deal.

Goldwind started investor education last Monday. The deal will be priced on June 11 (US time), and the trading debut is scheduled for June 22. The transaction is being arranged by China International Capital Corp, Citi and Credit Suisse.

The company decided to list in Hong Kong instead of the US partly because it is already listed in Shenzhen, a banker said. Otherwise, the US market has been popular with China's renewable energy companies seeking to float their shares overseas -- particularly the solar power companies. The latest such listing was completed last month by JinkoSolar, which raised $64.2 million in a US IPO. The company was forced to price its shares at the bottom of an $11 to $13 range, after encountering a lot of market volatility during the roadshow. Credit Suisse was the sole bookrunner for that deal.

Also in the US market is Nobao Renewable Energy, a Shanghai-based builder of geothermal-energy systems, which is seeking to reap as much as $180 million through a listing on the New York Stock Exchange. Citi and UBS are the bookrunners.

Goldwind listed on the Shenzhen Stock Exchange, the trading platform for China's small and medium enterprises, after raising $244 million in 2007. It sold 50 million shares at Rmb36 apiece, which valued the company at a P/E of 29.98 times. Haitong Securities arranged the deal.

Goldwind recorded a net profit of Rmb1.74 billion ($255 million) in 2009, up 92% from Rmb906 million the previous year, according to a preliminary IPO prospectus.