Shares of Chinese solar panel maker GCL expected to face selling pressure after asset-sale talks collapse

Hong Kong-listed shares of GCL Poly Energy, the world's largest solar panel materials maker, could face selling pressure on Monday after talks to sell 51 per cent of its principal subsidiary to state-backed power generation equipment maker Shanghai Electric Group for up to 12.75 billion yuan (around US$1.9 billion) collapsed.

The demise of the stake sale deals a blow to debt-laden GCL’s attempt to raise funds to cut debt, and Shanghai Electric’s plan to further diversify away from its fossil fuel-driven business.

“In view of the size and complexity of the transaction, the parties found it difficult to reach a full agreement on the relevant terms and plans for the potential disposal in a short time frame,” GCL said in a filing to Hong Kong’s stock exchange late on Friday.

For GCL, controlled by mainland tycoon Zhu Gongshan, the intended disposal would have allowed it to declare a “special” dividend after not having declared any dividend since 2015, improve its financial health and ease solvency concerns, said Daiwa Ip, head of Hong Kong and China utilities equities research at Daiwa Capital Market in a report.

Ip said the deal would allow GCL to cut its net debt-to-shareholder equity ratio which stood at an elevated level of 187 per cent at the end of last year. He said GCL’s management had hinted of a payout upon receiving 6.37 billion yuan from the stake disposal which was expected to be a cash-plus-share deal.

GCL’s shares surged 9.2 per cent a day after the share sale was unveiled. Since the start of the year the shares have fallen 53 per cent due to rapidly falling prices and overcapacity of polysilicon and solar wafer. GCL is the world’s biggest producer of both materials by capacity.

Shanghai Electric had intended to “switch to solar energy” through the proposed acquisition, to replace “old growth drivers with new ones” in light of the energy industry’s “transformation pressure”, it said in a separate filing to the exchange on Friday.