China’s solar major GCL to get US$1 billion investment from Taiping Insurance
Under a non binding agreement signed, Taiping Financial Holdings will lead a US$1 billion fund to buy new shares and convertible bonds
Shares of GCL New Energy (GNE), the solar farm unit of the world's largest solar panel materials producer GCL-Poly Energy, surged as much as 11.5 per cent after China Taiping Insurance tentatively agreed to buy a major stake that will help relieve the company’s heavy debt load.
Under a non-legally binding “cooperation framework agreement”, Taiping Financial Holdings, the “overseas comprehensive investment platform” of state-owned China Taiping Insurance Group, would lead a HK$8 billion (US$1 billion) fund to make the purchase, according to GCL New Energy’s filing to Hong Kong’s bourse late on Monday.
The to-be-established fund will buy new GNE shares and bonds convertible into shares for a total of around HK$8 billion. China Taiping Insurance Group is also the controlling shareholder of Hong Kong-listed China Taiping Insurance Holdings.
GNE shares closed the morning trading session at noon 4.9 per cent higher at 64 HK cents, after changing hands at as high as 68 HK cents.
The shares to be purchased will represent less than a 30 per cent stake – the threshold above which the purchaser will need to make a mandatory offer to buy all of the shares from GNE’s other owners.
“The GNE directors are of the view that the possible subscription represents a valuable opportunity for the GNE Group to bring in a group of investors with strong financial background,” the filing said. It also said the subscription could improve GNE’s liquidity position and enhance its financial flexibility necessary for future business development.
The shares’ purchase price will be 10 per cent lower than the average closing price of GNE in the previous 10 trading days preceding the framework agreement.
The bond-to-share conversion price will be subject to further discussions.
Taiping Financial will act as the fund’s manager.
The agreement was subject to due diligence on GNE, in addition to approval by a majority of GNE’s shareholders, the filing said.
GNE is 62.28 per cent owned by GCL-Poly.
UBS head of Asian utilities research Simon Powell said many pension funds and private equity firms had been investing into solar and wind farms, attracted by their long term stable cash flows that match their obligations to clients.
But in China, the lack of long term power purchase agreements, such as 25-year ones popular overseas, may be a challenge, he noted.
Daniel Yang, an equity analyst covering China’s utilities and renewable energy sector, said major arrears in subsidy payments and uncertainty of future state support policy were also barriers investors in the wind and solar sector face.
Xu Yang, vice-president of GCL New Energy last month said the company was owed four billion yuan (HK$4.72 billion) of subsidies, on which no interest would be paid.
The firm has sought funding from leasing firms to finance new projects. In the first half, it made a net profit of 485 million yuan and incurred finance costs of 606 million yuan while its average borrowing cost was 6.8 per cent.