China’s GCL New Energy plans new financing method to fund expansion

PUBLISHED : Friday, 26 August, 2016, 8:02am
UPDATED : Friday, 26 August, 2016, 3:32pm

Debt-laden GCL New Energy, the solar farms development subsidiary of the world’s largest solar panel materials producer GCL Poly Energy, is seeking to sell stakes in its solar farms and package them into wealth management products.

The company aims to raise the funding it needs to fulfil its goal of adding 1.4 gigawatt (GW) of new projects in the second half of the year, after installing 1.1GW in the first half, while capping its debt ratio at the current level.

It is targeting to cut its solar farm development cost to 6.50 yuan per watt by year-end, from 7.20 yuan mid-year and eight yuan at the start of the year, thanks to a continuous decline in solar panel prices.

Some 7.9 billion yuan of investment would be required to meet the second-half goal, at 7.20 yuan a watt.

“We have been in talks with some investment funds as well as listed firms on project stake sales,” president Sun Xingping told reporters on Wednesday. “They consider solar farms attractive given the low interest rate environment and stable return of our industry.

“We like the idea because we can get some cash in, which we can use to co-invest with them in other new projects.”

With 2.74GW of installed capacity at the end of June, GCL New Energy is China’s second largest solar farm operator, according to Daiwa Capital Markets.

Chief financial officer Wilson Tong Wan-sze said the company is studying the feasibility of issuing “minibond-like” wealth-management products on the mainland, although the regulatory barriers are not entirely clear.

It would also look into the possibility of separately listing a portfolio of solar farms in the form of “special purpose vehicles” such as trust firms that own businesses with stable cash flows and pay out almost all of them as dividends.

Before the latest fund-raising plan, GCL New Energy had already tapped other financing channels besides bank borrowings, which currently account for the majority of its liabilities.

It raised HK$2.3 billion via a rights share issue in February, 1.3 billion yuan from an investment fund jointly set up in April with China Orient Asset Management, and 1.9 billion yuan by entering into finance leasing arrangements with firms including Xinxin Finance Leasing and China Financial Leasing.

GCL New Energy said it aims to keep its total liabilities to total assets ratio at no higher than 85 per cent “in the long run”, compared to 85.4 per cent at the end of June.

The firm on Wednesday posted a net profit of 167 million yuan for the first half of the year. Excluding non-recurring items related to accounting gains on acquisitions and a bond convertible into shares, underlying profit grew to 212 million yuan from 4 million yuan in the year-earlier period when it had 0.77GW of installed capacity.

Despite concerns of output wastage due to power grid bottlenecks, Sun said only 2 per cent of GCL New Energy’s power output was not absorbed by the grids in the first half of the year because of the broad geographical spread of its 68 solar plants across 19 provinces and autonomous regions.

The nationwide wastage rate was 13.9 per cent in the first quarter, the bulk of which was in the energy-rich but sparsely populated northwestern regions, with that of Ningxia at 20 per cent, compared to 39 per cent in Gansu and 52 per cent in Xinjiang.

Asked if management is concerned about potential disorderly cut-throat competition after Beijing suspended guaranteed subsidised tariffs to new solar farms and adopted an open bidding method for doling out development rights instead, Sun said his firm will not participate in loss-making ventures.

“We would not waiver from our requirement that all projects we invest in must have return rates of at least 12 per cent,” he said. “Given our competitiveness in project and operating cost containment, we are confident of clinching enough projects to meet our target of adding 2 to 2.5GW to our portfolio each year.”

Parent GCL Poly on Wednesday unveiled a first-half net profit of 1.39 billion yuan, in line with its profit alert issued earlier.

Dennis Ip, Daiwa’s head of Hong Kong and China utilities, renewables and environment research, said in a note that excluding one-off items including 446 million yuan of fixed asset impairments, recurring net profit was up 145 per cent to 1.93 billion yuan, equivalent to 77 per cent of the full-year consensus estimate by analysts polled by Bloomberg.

Ip warned of a “much weaker” second-half profit margin and shipment volume outlook due to a recent 19 per cent price fall in its main product – the solar wafers that are used to make solar panels.

A solar farm installation rush ahead of the July 1 subsidised tariff reduction date meant a lull in much of the second half ahead of another possible rush before year-end to meet approved project deadlines, Ip cited GCL Poly management as saying.

This article and the headline have been amended to identify the company as GCL New Energy