Goldwind Science seeks HK$9.1b in share offering

PUBLISHED : Tuesday, 01 June, 2010, 12:00am
UPDATED : Tuesday, 01 June, 2010, 12:00am

Xinjiang Goldwind Science and Technology, the mainland's second-largest producer of wind turbine generators, is seeking to break into the overseas market in the next few years, but analysts say that it faces an uphill task.

The Urumqi-based firm, set up in 1998, plans to plough 24 per cent of the up to HK$9.1 billion proceeds from its proposed listing in Hong Kong into overseas expansion, people familiar with the deal said. It will spend 40 per cent of the proceeds to build domestic plants, 15 per cent on product development, 11 per cent to repay loans and 10 per cent to boost working capital.

The company plans to sell this month 395.3 million new shares at HK$19.80 to HK$23 each, or 18.8 to 21.8 times this year's forecast earnings and 14.7 to 17.1 times next year's, the people said. It expects to make a net profit of not less than 2.24 billion yuan (HK$2.55 billion) this year, up from 1.75 billion yuan last year.

Citi, Credit Suisse and China International Capital Corp are managing the share sale. Goldwind raised 1.8 billion yuan in late 2007 from a listing on the Shenzhen bourse.

Despite commanding a 21 per cent share of the mainland market and being the world's fifth-largest wind turbine maker, Goldwind only began international sales in 2008.

Chief financial officer Sun Liang was quoted by the media last week as saying that the company was aiming to have 30 per cent of its sales from overseas markets by 2012. Vice-president Li Yuzhuo said in September last year that overseas sales formed less than 1 per cent of the total.

Last week, Goldwind announced that it would inject US$5.5 million into a newly set up US unit and US$2 million to establish an Australian unit. 'We believe the growth opportunities in the United States, Australia and Europe are significant, given the public and policy support for renewable energy in those regions,' Goldwind said in its preliminary listing prospectus released yesterday.

It said industry researcher BTM Consult had forecast the compound annual growth rate of wind power installed capacity to be 23.3 per cent in the US, 22.4 per cent in Australia and 16.7 per cent in Europe.

Analysts said although mainland producers' prices were estimated to be 15 to 20 per cent cheaper than those of their more established rivals, high transportation costs and protectionism meant Goldwind would need to set up production and after-sales service infrastructure overseas.

High initial set-up costs mean it would take years for Goldwind to make a profit from overseas sales. 'They would need to provide very good warranty to attract orders,' Core Pacific-Yamaichi Securities analyst Lee Yuk-kei said.

An analyst at a Shanghai-based brokerage said it took several years of exposure to different wind conditions for problems with newly installed wind turbines to show up, and mainland producers had already been fixing many quality problems.

'Fixing problems at overseas-installed turbines will be much more expensive, and overseas customers have higher expectations on reliability, so overseas expansion will be tough for Goldwind,' he added.

Still, investors can draw some comfort from the fact that Goldwind has recently obtained a US$6 billion credit line from policy lender China Development Bank to boost international sales, invest in overseas wind farms and provide credit to would-be overseas customers.