With solar shares down about 19 percent in the past 30 days, according to Lazard Capital Markets, you might not think this was the best time to raise new money on the public markets.
But several solar companies apparently disagree.
GT Solar, which makes solar-manufacturing equipment, on Tuesday said it plans to offer 30.3 million shares at a price of between $15.50 and $17.50 per share in its initial public offering. The company, which filed for an offering of up to $200 million in April, now plans to raise up to $609.8 million, including the option of 4.5 million shares for overallotments.
The news came after several groups had bemoaned the lack of IPOs in the second quarter. Eric Wesoff, a senior analyst at Greentech Media, said this week that the company was a good candidate for an IPO (see Greentech Taps VCs for Record Investments in 2Q).
In addition to GT Solar, Evergreen Solar (NSDQ: ESLR) on Tuesday announced it had closed a $322 million follow-on offering of convertible senior notes. Last week, China Sunergy (NSDQ: CSUN) raised $54.4 million, also from the sale of convertible senior notes. And in June, ReneSola (NYSE: SOL) raised about $187 million in a follow-on offering of American Depositary Shares.
Rick Hanna, an equity analyst at Morningstar, said the offerings keep coming because solar companies need the money.
Forecasts of “a tsunami of capacity” coming in and concerns that demand could be shaky because of uncertain government subsidies have caused concerns that a time of more intense competition could be on its way, he said (see Solar Sector Heading for a Shakeout and Oversupply of Silicon to Be Worse Than Expected).
Winners will have low costs – not to mention a sales backlog and secure supply of raw materials – and companies are expanding to try to get costs down.
Evergreen, for example, plans to use the money from its offering to fund a plant expected to have the capacity to produce 135 megawatts of solar cells in 2009 and grow to 850 megawatts of capacity in 2012, according to Lazard. Meanwhile, it has lowered its production at its smaller 15-megawatt pilot plant, reassigning employees to its larger plant, according to Piper Jaffray.
“If you’re going to be a survivor, you want to build scale, because increased scale lowers their cost,” Hanna said. “They’re all shooting for low-cost status and need the capacity to build that out.”
On top of that, there’s still plenty of demand in the industry today, and many companies are still selling as much as they can produce, he said. Even though that might be changing, the current hot demand is another reason for companies to want to produce more.
That doesn’t mean companies won’t suffer from the market volatility, however.
According to Lazard, shares of JA Solar, for example, have fallen 34 percent in the past 30 days based on concern about government subsidies and its upcoming earnings closing at $15.42 per share Wednesday. Lazard reiterated a “Buy” rating Wednesday with a price target of $32 per share, saying the lower prices have created a “solid entry point.”
Among other countries, the company has sales in Spain, as well as the United States, both of which have incentives slated to expire soon (see Spanish Solar Group: Don’t Change Feed-In Tariffs, Spain Could Reduce Solar Subsidies by 35%, Solar Firms Struggle to Forecast 2009 and Senate Blocks Renewable Incentives Bill).
Aside from the subsidy uncertainties, general market melee also is impacting solar stocks, Hanna said.
“We’re constantly getting bombarded with news of new startups, whether from Intel or Shell, and a lot of people are starting to scratch their heads and think, ‘Wow, there are a lot of big names and money being thrown at this stuff and yet demand is still shaky because it’s going to depend on government support. How do we pick a winner?’ ”
Intel Corp., which last month spun out SpectraWatt, on Wednesday said it would invest €24 million in German solar-panel company Sulfurcell. The investment is part of a €85 million round. And Showa Shell Sekiyu, a Japanese subsidiary of Royal Dutch Shell, said last week it plans to spend about $944 million to build a 1-gigawatt thin-film plant (see Shell’s Showa Solar Plans 1-Gigawatt Plant).
“The capital markets are not completely dried up,” he said. “Investors still will go for a positive story with a good chance of success.”