Doug Young
Bottom line: Yingli’s use of crowd-funding
to finance a small project and the bargain sale price of a small
polysilicon maker reflect continuing struggles at second-tier
solar companies and the need for more consolidation.
Two solar energy stories are showing how overcapacity continues
to haunt the sector 2 years after it began to emerge from a major
downturn. The first involves a desperate-looking fund-raising plan
from the struggling Yingli (NYSE: YGE),
which is trying to use crowd funding to pay for a new solar plant.
The other news involves another slightly bizarre investment in the
space, with Internet titan Tencent (HKEx: 700)
and real estate giant Evergrande (HKEx: 3333)
paying a bargain price for Mascotte (HKEx: 136),
a money-losing Taiwanese maker of polysilicon, the main ingredient
used to make solar panels.
Both of these deals look strange for different reasons that
reflect the lingering state of turmoil in a solar panel sector
plagued by excess capacity. Many of the weakest players have
closed or been purchased over the last 2 years, with names like Suntech
and LDK disappearing as independent companies.
But a relatively large field of second-tier players like Yingli
still remain in business and probably need to either close or get
acquired before the industry can truly return to health.
Let’s start with Yingli, which proudly proclaims in its latest
announcement that it is bringing solar financing to the masses by
giving average people the chance to invest in a small new solar
power plant. (company announcement) The plant is based in
Yingli’s home province of Hebei, hinting that it used its local
connections to get the project build. The plant has a modest
capacity of 4 megawatts, and was funded with the sale of 20
million yuan ($3.2 million) in bonds.
Two Chinese companies provided the project’s original financing,
but now it appears they want to sell their stake to average
consumers via an online platform that resembles the popular
crowd-funding model. The fact that these big investors are looking
to sell their stake to unsophisticated consumers shows their own
lack of confidence in the project, and the overall move really
looks like desperation.
Yingli is the weakest of China’s major solar panel makers to
survive the downturn so far, and this kind of move shows just how
shaky its finances are. The company shocked investors in May when
it said it was in danger of going out of business, even though it
later said its statement was misinterpreted. (previous post) This kind of move to raise
money through crowd-funding certainly won’t help to restore
confidence in the company, and it’s still possible we could see
Yingli ultimately fail this year or next.
Next there’s the other deal that has seen Tencent and Evergrande
take a majority 75 percent stake of Mascotte for HK$750 million
($100 million). (company announcement; English article) The purchase price
represents a whopping 97 percent discount to Mascotte’s last stock
price before the announcement, which actually came last week.
A quick look at Mascotte’s latest financial statement, which was
released after announcement of the Tencent and Evergrande
investment, shows why the company so desperately needed the new
money. Mascotte lost HK$129 million last year, which was actually
an improvement over the $547 million it lost the previous year.
Still, so many losses over consecutive years meant the company was
probably out of funds and unable to find anyone to lend it new
money to continue its operations.
The involvement of Tencent in this transaction looks a bit
strange, as the company has never invested in this kind of new
energy deal before. But that said, big tech names like Apple
(Nasdaq: AAPL) and fast-rising online video firm LeTV
(Shenzhen: 300104) seem to be suddenly piling into the space,
perhaps as a form of public relations to show their commitment to
environmental protection. Such investments have so far been quite
small, and in this case Tencent won’t feel too much pain if
Mascotte fails, which looks like a strong possibility over the
next year or two.
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.