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Solar Privatization

Solar firms move from equity markets to address debt, demand flux.

Bloomberg -- Add  Canadian Solar Inc. to the growing list of panel manufacturers looking to ditch public markets and go private.

The company’s chief executive officer, Shawn Qu, said Monday he’s offering $18.47 in cash for all common shares that he and his wife don’t already own. In March, rival Trina Solar Ltd. finished a $1.1 billion privatization deal. JA Solar Holdings Co., the world’s third-biggest publicly traded solar manufacturer, agreed last month to be taken private.

Consider them the start of what could prove to be a global trend as solar manufacturers, which have fought somewhat unsuccessfully for years to be valued more in Wall Street’s eyes, grapple with high levels of debt and volatility in demand.

“Investors in general have struggled to value solar stocks, and now you have the U.S. market up in the air” because of tax reforms that threaten the solar industry, Bloomberg Intelligence analyst Kit Konolige said. “The point of being in the public markets is you have more financing available on better terms. If you don’t have that, what’s the point of being public?”

Since the beginning of 2010, spot prices for solar modules have plummeted 83 percent, averaging just 31.4 cents a watt as of Dec. 6, according to PVinsights pricing data compiled by Bloomberg. The slide, driven largely by more efficient manufacturing and capacity in China, have been squeezing panelmakers’ profits, making them increasingly difficult to value.

So is the U.S. tax plan that threatens to cripple a tax-equity investment vehicle that the industry has relied on for years to finance projects.

For another reason Qu may be trying to take Canadian Solar private, consider Longi Green Energy Technology Co., a silicon wafer maker listed in China that has a market value in excess of $10 billion. Canadian Solar has a market capitalization of about $1 billion.

“One answer is Shawn Qu becomes a much richer man,” said Gordon Johnson, an analyst at Axiom Capital Management. “If I simply delist from the U.S. stock exchange and relist on the Chinese stock exchange, the value of my stock will probably increase substantially.”

That could also be the reason Trina went private and JA Solar agreed to -- they’re both based in China. Qu grew up in China and built some of his company’s operations there. David Pasquale, a spokesman for Canadian Solar, declined to comment beyond the company’s statement on Monday.

Motivations aside, Qu’s offer price may prove too low to entice shareholders, according to Brad Meikle, a renewable energy analyst at Coker & Palmer Inc. It’s below $32 a share, Meikle’s estimate for what Canadian Solar is worth, and well below his $45 upside target.

Shares of Canadian Solar rose as much as 6.7 percent to $18.40 on Monday before closing at $17.79 in New York. The company’s board has formed a special committee of independent and what it described as “disinterested” directors to consider the proposal.

JPMorgan Chase & Co. downgraded Canadian Solar to the equivalent of sell from hold and maintained its $15 price target, according to a research note Tuesday.

“The stock has traded through our price target and we believe is now likely capped by the CEO’s take-private offer of $18.47,” according to the note. “We do not believe a higher, competing offer is likely and there could still be risks associated with the deal itself.”

There are industrywide implications to Canadian Solar going private, Guggenheim Securities said in a research note late Monday: “We expect that the move may spur investor expectations of similar acquisitions of other publicly traded” solar companies.

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