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.

For the past two years Shanghai Electric has recorded falling revenue from coal-fired power generation-related equipment, according to its results filings. The company also makes natural gas, hydro, wind and nuclear power equipment.

For Shanghai Electric, the collapse of the talks could be positive news for shareholders who opposed the acquisition. The company’s shares have fallen 16.5 per cent since the stake acquisition was announced, compared to a 11.5 per cent decline in the Hang Seng Index.

Pierre Lau, Citi’s head of Asia utilities research, said in June the acquisition would probably be rejected by Shanghai Electric shareholders over cost concerns.

Shanghai Electric said termination of the acquisition plan will have no adverse impact on its operations.

Shanghai Electric is forecast to see a 9.5 per cent decline in net profit to 2.38 billion yuan this year, while GCL’s net profit could fall 9.1 per cent to 1.79 billion yuan, according to consensus estimates of analysts polled by Bloomberg.

Meanwhile, Shanghai Electric said Friday its board “expresses its sincere apology” to shareholders for the two-month suspension of its Shanghai-listed shares.

The company had expected the suspension to last no more than one month, according to its June 6 filing.

Prolonged share suspensions were criticised by index compiler MSCI, whose global chief executive Henry Fernandez last year said the practice was abused by some listed companies in China to protect their shares from price declines by coming up with “excuses” to halt trading.