According to a new filing made with the US regulators on Friday, Yingli is now aiming to sell $150 million worth of CBs together with the seven million American depositary shares (ADS) offered by a group of existing shareholders. The initial filing made on November 7 was for a sale of 10 million ADS û three million new and seven million existing ones. Goldman Sachs is arranging the combined offering.
The change of heart comes as the US market has been struggling over the past couple of weeks amid concerns that deteriorating bank earnings and tighter credit conditions will have implications for global growth. Chinese companies listed in the US have had a particularly difficult time after a poor debut by recent newcomer Agria Corp became the cue to take profits. The Chinese companies had been outperforming the broader US market in September and October, with several of the IPOs seeing more than 50% gains on their first day of trading.
The mood has been a lot less festive in the past two weeks with disappointing earnings from companies like online gaming provider Giant Interactive and solar wafer manufacturer Trina Solar. YingliÆs share price has fallen 27% since the initial filing to FridayÆs close of $25.73 and has lost almost a third of its value since it hit an all-time closing high of $37.85 on October 30.
Not surprisingly, therefore, the management has become less inclined to issue new shares. Based on the three million ADS it intended to sell, the company would have been able to raise $29 million less based on the current share price than if it had sold two weeks ago. A CB that allows the company to raise cash based on its future share price makes sense and will also avoid having the company compete directly with its selling shareholders for investor funds. Besides, it should give the company a ôhigher certainty of executionö in the current market environment, one source notes.
A CB is an interesting alternative to the follow-on share sales that US-listed companies tend to do at regular intervals every six or 12 months together with the staggered sell-down by their pre-IPO shareholders. But it is one that so far hasnÆt really been explored by the private Chinese companies that are listed in the US. In fact, Yingli will be only the second such company to sell convertible bonds after fellow solar power company Suntech Power raised $500 million from a CB in February this year that was upsized by 40% due to strong demand. Goldman was a joint bookrunner on that offering, together with ABN AMRO Rothschild and UBS.
YingliÆs new filing contains few details about the structure of the offering, apart from the fact that the CB will pay no coupon. The maturity, yield and conversion premium will all be determined just before the deal goes on the road, which according to sources, is expected to happen later this week. The CB does have a $22.5 million upsize option, however, meaning the company could raise a maximum of $172.5 million from the sale.
The sell-down by the existing shareholders also has a 15% greenshoe, which could boost the total offering to 8.05 million shares. Based on the current share price, this could see the company raise a combined $205 million. The base size of seven million shares accounts for 5.5% of YingliÆs outstanding share capital.
The two largest sellers are Baytree Investments, which is a unit of Temasek Holdings, and investment company Inspiration Partners, which together will sell 4.75 million shares. After the sale (but before the exercise of the greenshoe), Baytree will hold 5.1% of the company, while Inspiration PartnersÆ stake will fall to 4.5%.
For them it will still make sense to go ahead with a sale at the current levels, given that YingliÆs share price has more than doubled from its IPO price of $11. Most of the selling shareholders would also have paid less than that since they bought into the company before its $319 million IPO, which was completed in June this year. Based on the current share price, the sell-down could total about $180 million.
YingliÆs strength lies in that it is an integrated solar power company that is active across the entire value chain, from the production of wafers and ingots, to the installation of entire solar PV systems. This gives it better control over its margins and also ensures a more reliable supply of wafers which remain a key bottleneck within the solar power industry.
Because of their similar scale, analysts like to compare Yingli to Suntech Power, although the latter focuses primarily on solar cells and modules û where it is the market leader. A more direct comparison from a business perspective is Trina, which is a bit unfortunate given the negative fallout after its earnings report last week that triggered a 23.6% drop in the share price on Thursday alone. Trina started out as a solar module manufacturer but has been diversifying its business with the aim of becoming a fully-integrated player. It is still significantly smaller than Yingli, however.
Contrary to most other Chinese stocks in the US, Suntech Power has continued to perform in recent weeks and set a new record high of $69.42 as recently as November 16. It closed only slightly below there at $68.05 on Friday, indicating that the sell-off in other solar power stocks is not a reflection of an emerging scepticism about the sector as a whole. Suntech has a bit of a special status with US investors, however, because it was the first Chinese solar power company to list in the US back in December 2005. The company also continues to deliver on the earnings front and its share price has risen more than 350% from its IPO price of $15.
Despite the increasingly volatile market conditions, Yingli is by no means the company trying to raise funds at the moment. Also in the market is WSP Holdings, a Chinese designer and manufacturer of seamless casing, tubing and drill pipes for the oil industry. The company, which started its formal roadshow last Wednesday, and is about to kick off the US leg of the marketing for a listing on the New York Stock Exchange today, is aiming to raise between $262.5 million and $312.5 million with the help of JPMorgan.
Sources say the deal has attracted a fair bit of interest based on the companyÆs strong growth profile and technological know-how. On an enterprise value-to-Ebitda basis, the bottom end of the current price range also values it at a slight discount to global peers like Argentina-based Tenaris and Vallourec of France, according to a source. Tenaris and Vallourec are both listed in the US.
WSPÆs price range gives it an EV/Ebitda multiple of 5.9 to 6.9, while on a price-to-earnings basis, the stock is in the market at 9.7 to 11.6 times its projected 2008 earnings. WSP is due to price its offering on December 5.
On the same day, China-based advertiser VisionChina Media will close the books on its up to $155.3 million Nasdaq IPO, which is being arranged by Credit Suisse and Merrill Lynch. As reported earlier by FinanceAsia, VisionChina is offering its shares at $9.50 to $11.50, which translates into 17 to 21 times its projected 2008 earnings û a discount to the other screen-based Chinese advertisers that are already listed in the US, such as long-time investor favourite Focus Media and AirMedia, which listed earlier this month.
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