Doug Young
Bottom line: Trina’s plan to separately list its solar plant-building assets is likely to meet with lukewarm to frosty demand.
A new plan by Trina (NYSE: TSL) to separately list some capital-intensive assets has overtones of desperation. The intense pressure solar panel makers continue to feel as their sector still struggles to recover from a downturn that dates back 4 years due to massive oversupply.
Panel prices have rebounded somewhat over the last 2 years and many of the best-run companies have returned to profitability during that time. Even better performers like Trina are feeling pressure as they pour massive money into construction of new solar power plants, in a bid to create more demand for their products.
The bottom line is that solar plant construction is a costly business and not many private sector companies want to get involved due to the volatile climate. The situation is particularly difficult in China, even though Beijing has committed to a massive build-up of solar energy. But like many things in China, a wide range of complicating factors exist for anyone who wants to actually try and build solar power plants in the country.
Trina is planning to spin off its unit that builds new solar farms, with an aim of eventually making a separate IPO for the company. (English article) Trina CFO Teresa Tan discussed the plan at a forum in the northeastern city of Dalian, and said her company would like to make the IPO as soon as next year.
Under normal circumstances such a plan might look attractive for investors, since such power plants provide stable returns by using cash generated from the sale of electricity to pay down debt and give a dividend to investors. But in Yingli’s case, this particular new company is likely to focus on construction of power plants in China. Such plants are far less reliable since they are more difficult to build due to local bureaucratic and technical issues. And even after construction is complete, many still often run into problems.
In Need of Cash
Trina could clearly use the cash it would get from an IPO, as the company had more than $1 billion in debt and just $600 million in cash in its last quarterly report. Much of the debt has come through a series of bond and stock offerings over the last year, a big portion of which is being used to build new solar plants that will buy their panels from Trina. I suspect investors will quickly realize the high risk associated with the company Trina now hopes to spin off, and demand for the IPO will be lukewarm at best and frosty at worst.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.
