GCL-Poly’s $3.4bn solar acquisition

Published: June 23 2009 09:25

It is easy to see why the myriad investment vehicles behind Hong Kong-listed GCL-Poly Energy’s $3.4bn purchase of GCL Solar and other polysilicon plants are blessed with names such as Happy Genius and Greatest Joy. This is a deal that sees a power plant operator in China, biggest emitter of greenhouse gases, move decisively into clean energy.
Seasoned China hands will smell a rat. GCL Solar, or Silicon Technology Holdings as it was then known, sought to list in New York last summer. Roiled markets put paid to that; instead, investors are now being treated to a classic related party transaction. Zhu Gong Shan, chairman and, together with his family, controlling shareholder of GCL-Poly, is also the major vendor. Thus Mr Zhu, rather than any industrial logic, is the real driver of this deal. Any synergies between coal-fired plants and those producing polysilicon are few.

Still, measured on a trailing basis, the bid price of about 10 times earnings is roughly in line with the global peer group. Future earnings are anyone’s guess. Polysilicon moved from shortage to glut in almost the time it takes to flick a light switch. With governments everywhere throwing subsidies at clean energy and pledging eye-popping targets for renewable energy, newcomers are flocking in: there are believed to be more than 100 players, half of them in China.
The result, according to consultancy iSuppli, is that solar cell production could double this year, ramping up supplies. Polysilicon spot prices are already down from an average $400/kg last year to about $60/kg. Investors in Hong Kong saw the sunny side yesterday, pushing the price of GCL-Poly up 15 per cent. That is putting a lot of faith in politicians delivering on promises and connected party transactions benefiting all participants.

BACKGROUND NEWS
GCL-Poly Energy, a Hong Kong-based power plant operator, said on Tuesday it would pay HK$26.4bn (US$3.4bn) to acquire solar assets from its chairman as it seeks to expand in the green energy sector. The company said it would buy Jiangsu Zhongeng, a supplier of polysilicon and wafers used by the solar industry, from Zhu Gongshan, chairman and controlling shareholder of GCL-Poly.
To fund the purchase, GCL-Poly will issue 10bn new shares at HK$2.2 each, representing a 12 per cent discount to the company’s last closing price. It will also issue US$350m in secured notes and pay Mr Zhu US$200m in cash