Investor fears grow over GCL asset sale plan

GCL-Poly Energy Holdings, the world's largest maker of solar panel raw materials polysilicon and solar wafers, has surprised investors by unveiling a plan to sell a major chunk of its business - wafer production - to a third party that may sell it to GCL's largest shareholder.

Its share price sank 16 per cent last Monday, the first trading day after the news broke, as investors worried that their interest might be hurt by potential connected transactions, since GCL could become a long-term major supplier to the wafer business that may be controlled by its chairman and largest shareholder, Zhu Gongshan.

"The deal [may be] positive for Zhu, who will likely acquire more flexibility to raise equity from the market to reduce his debt burden while keeping the same or rising share to cash flows," Nomura analyst Nitin Kumar wrote in a note to investors. "We see the potential deal as negative for GCL shareholders."

There was risk of the wafer assets being sold at less than fair value since comparable wafer firms were unprofitable and were trading below book value, he noted.

GCL's directors tried to allay the fears by telling investors through a teleconference a week ago that the potential sale was aimed to help cut the company's debt, and not to advance Zhu's interest at the expense of others.

"I will definitely not harm minority shareholders' interest," Zhu said. "Even if we sell the wafer business, I'm confident GCL's profit will still rise this year."