LDK Wants $200M More for Manufacturing
By Jennifer Kho
LDK Solar Co. Ltd. (NYSE: LDK) announced Friday it plans to sell $200.4 million in American depositary shares to raise more money for manufacturing.
The Xinyu City, China-based solar-wafer manufacturer said it would offer 4.8 million American depositary shares at $41.75 each. In filings with the U.S. Securities and Exchange Commission, the company didn't disclose how much it expects to net from the sale.
LDK said it plans to use approximately 60 percent of the net proceeds to build a silicon-manufacturing plant, approximately 30 percent to expand its wafer-production capacity and the final 10 percent for "general corporate activities."
The company is constructing two silicon factories – a 1,000-ton plant and a 15,000-ton plant – and in April already raised $400 million to build the plants and support a planned wafer-capacity expansion (see LDK to Raise $400M).
The company, which said it has grown its multicrystalline solar-wafer production capacity from 880 megawatts in June to 1 gigawatt in August, expects to reach an annual capacity of approximately 1.1 gigawatts by the end of the year and 2 gigawatts by the end of next year. LDK also plans to begin producing monocrystaline wafers, which convert sunlight into electricity more efficiently than multicrystalline wafers, in the fourth quarter of this year and to reach about 100 megawatts of annual capacity by the end of 2008 and 200 megawatts by the end of 2009.
At that time, Hakan Telenius, organizer of the LDK Investor Group, said he expected the money would be sufficient for the rest of 2008, and that the company "would only raise more if they were not able to deliver on 2009 numbers."
LDK, which was founded in 2005 and made an initial public offering last year, didn't respond to calls and emails asking why it needs more money to complete its plants or whether it expects a delay.
But in an SEC filing, the company said its estimated total cost to build the polysilicon plant (made up of two factories in the same location) is approximately $1.3 billion.
The company in April said it planned to spend $1.2 billion on its first two silicon plants, along with $600 million to expand its wafer production (see LDK Seeks Big-Time Capital).
At the time, LDK said it would finance the bulk of the cost through its operations, including expected net profits of $200 million in 2008 and $400 million in 2009, as well as about $1 billion in expected customer deposits for long-term wafer contracts for this year and next year.
The company expected a shortfall of at least $200 million, which investors hoped would be more than satisfied by the $400 million it raised in April.
In July, LDK announced that it had completed the first phase of construction on its smaller silicon plant and was on track to begin production by October (see LDK Silicon Plant on Track). But it still was awaiting more equipment to complete the plant, which it expected to happen at the end of the year.
It also planned to complete the first phase of its larger silicon plant by the end of this year.
In a research note in June, Piper Jaffray analyst Jesse Pichel wrote that he remains "cautious on LDK's ability to ramp its polysilicon plant on time," although he expected the company could achieve 16,000 metric tons of capacity in 2009.
According to an SEC filing Friday, LDK still expects to complete the equipment installation at its 1,000-ton plant and to have it operational by the end of the year.
At its 15,000-ton plant, the company plans to complete equipment installation for an annual capacity of 6,000 metric tons by the end of this year, but said it would not begin production at the plant until 2009. In spite of the installation, LDK only expects 5,000 metric tons of capacity to become operational in the first half of next year, said the filing.
"We do not expect to produce any significant quantities of polysilicon prior to 2009," according to the prospectus.
USB AG and Goldman Sachs LLC are underwriting the latest offering.
LDK shares fell 5.26 percent on the news to close at $41.44 per share Friday.
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This article has 7 comments:
- gebby
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Sep 22 08:10 AM- canb888
- 31 Comments
Sep 22 09:07 AM- canb888
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Sep 22 09:34 AMLDK Solar pulls off $200 million follow-on
By Anette Jönsson | 22 September 2008
The deal is launched before the opening of US trading on Friday and prices at a 4.55% discount to the previous day's close.
In a surprising move, coming right at the end of one of the most volatile and hectic weeks in recent Wall Street history, LDK Solar succeeded in raising $200.4 million through a follow-on offering. The Chinese solar wafer manufacturer grabbed a window that opened up after its share price rebounded 16% from Monday’s low amid a recovery in the broader market sentiment and the gamble paid off. Demand was even strong enough to allow the deal to be upsized by 26%.
The company initially offered 3.8 million American depositary shares at a 2% to 7% discount to Thursday’s close of $43.74. It ended up selling 4.8 million ADS – all backed by primary common shares – at a price of $41.75, or a 4.55% discount. At the final size, the offering accounted for about 4.5% of the existing share capital.
The deal was launched an hour before the US market opened on Friday and was covered in 20 minutes. However, the lead managers weren’t able to close the books until about 30 minutes into the trading session as they had to wait for the necessary regulatory approvals to come through, which meant the price had to be fixed while the stock was moving. But investors stuck with the deal and surprisingly didn’t show much price sensitivity. A source said the price could have been fixed at the top, although that might have been a bit too provocative in light of the panic sell-off in US markets earlier in the week.
The order book was said to have included about 40 accounts and comprised existing investors as well as solar power specialists and those who were chasing liquidity. Given the timing of the deal (kick-off was at 8.30pm Hong Kong time), the buyers were predominantly US-based, but with some interest from Europe and Asia.
LDK’s share price fell 5.3% to $41.44 in Friday’s trading and while this meant it closed below the placement price, the share price did recover from an intraday low of $39.15, suggesting that investors were still prepared to support the stock. The fact that the company was raising money primarily to fund capacity expansion likely worked in its favour here. LDK did underperform the market though, with most other solar power plays gaining ground and the Dow Jones index rallying 3.4%, following a 3.9% gain on Thursday.
The initial fall in the company’s share price may have been a reaction to the unusual way in which the shares were sold. US follow-ons are typically marketed during at least one, and often several, trading sessions against a moving share price. Investors may also have been surprised by the fact that the deal was launched on a Friday. According to the source, this is the first SEC-registered block trade to be done on a Friday morning ever.
This unusual approach brings further evidence that a bit of innovation, and indeed a lot of flexibility, may be needed to get deals out the door in the current environment which continues to be marked by violent day-to-day swings in global stock markets. The acute confidence crisis that had plagued the market for about a week-and-a-half and ultimately forced Lehman Brothers to file for bankruptcy protection, Merrill Lynch to agree to sell itself to Bank of America and insurer AIG to accept a costly government loan facility, appeared to have eased off on Thursday and Friday in response to the US government’s proposed $700 billion rescue package, but there is still no telling how long the current rebound will last. Recently no rally has lasted more than a couple of days, adding to the urgency to grab the window when it appears.
LDK mandated Goldman Sachs, J.P.Morgan and UBS for a capital raising exercise some time ago, and the first few filings on Friday morning suggested that the three banks would all be involved in the deal. However, when it was launched, J.P.Morgan was no longer on the ticket. No explanation was given, but it is possible that the bank didn’t feel comfortable to support a deal at such short notice. Goldman and UBS acted as joint bookrunners.
LDK said it would use 60% of the proceeds towards the ongoing construction of a polysilicon manufacturing plant, which was begun in August 2007 and marks its first move upstream in the value chain. Polysilicon, which is used as a raw material in solar wafers, has been in short supply for the past couple of years and by starting to produce its own, LDK will go some way towards securing its future needs. It expects to have an aggregate installed annual production capacity of approximately 7,000 tonnes of polysilicon by the end of 2008 – allowing it to produce 100 to 350 tonnes of polysilicon this year, and 16,000 tonnes by the end of 2009. Aside from these efforts to produce its own raw material, LDK believes it has enough inventory and commitments from suppliers to satisfy substantially all of its estimated requirements through 2008.
Another 30% of the proceeds will go towards the expansion of its production capacity of multicrystalline wafers from 880MW as of June 30 to 1,100MW by the end of this year and approximately 2,000MW by the end of 2009. It will also begin commercial production of monocrystalline wafers in the fourth quarter this year and expect to reach an annual capacity of 200MW by the end of 2009. Monocrystalline wafers have a higher efficiency than their multicrystalline equivalents, but cost more to produce.
LDK has experienced strong earnings growth since it made its first commercial wafer sale in April 2006 and in the six months to June, its bottom line improved by 274% year-on-year to $199.4 million. The share price remains volatile though and, while it has recovered from a 2008 low just below $20 in March, it is still down 40% from a year ago. The 16% bounce on Tuesday through Thursday last week came on the back of a 7.5% drop on Monday.
The successful outcome of this deal may improve the chances for solar cell manufacturer Gintech Energy Corp to complete its planned sale of about $150 million worth of global depositary receipts. The Taiwan-listed company set off on a nine-day roadshow on Wednesday last week and if the response is positive, it will conduct a one-day bookbuilding at the end of it. ABN AMRO and UBS are the joint bookrunners.
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
It's like night and day, completely different.
- Tony_V_3000
- 2 Comments
Sep 22 10:26 AMThank you for posting the other article. I have corresponded with Jennifer Kho about the tone of her articles in the past, but gave up. I don't think that she's negative or vindictive - I think she just knows absolutely ZERO about business (which she admits to). Her fascination with constantly quoting Jesse Pichel, when there are many other analysts that are much fairer does not help my opinion of her, either.
- absurd
- 7 Comments
Sep 22 12:08 PM- tessant
- 176 Comments
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Sep 22 12:17 PM- Huolong888
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Sep 22 04:39 PM