Xinjiang Goldwind Science & Technology, a leading manufacturer of wind turbine generators in China, started bookbuilding for an initial public offering in Hong Kong on May 31, hoping to raise as much as HK$9.09 billion ($1.2 billion) to fund its new projects.
With concerns over energy shortages and pollution rising, there is growing pressure in China's power generation industry to turn to more efficient and less polluted renewable energy. Beijing has said it wants at least 15% of its energy to come from renewable sources by 2020, and wind power is considered to be the most cost-competitive source of alternative energy in China.
That would translate into vast growth potential for renewable power generating companies like Goldwind. However, it doesn't mean the offering will breeze through the equity markets. Goldwind has to offer its shares at an attractive price compared to its competitors because "people demand discounts on new deals", said a source.
The Urumqi-based company, which is already listed in Shenzhen, is offering 395.3 million primary shares, or 15% of its enlarged share capital, at HK$19.80 to HK$23 per share. The price range represents a price-to-earnings ratio (P/E) of 18.8 to 21.8 times based on 2010 projected earnings, sources said.
By comparison, Hong Kong-listed wind farm operator China Longyuan Power is trading at 24.2 times its projected earnings for 2010 and Dongfang Electric at 20.5 times, sources said, noting that those two stocks are the best comparables for Goldwind.
The deal comes with a 15% greenshoe option which, if fully exercised, will allow the company to sell an additional 59 million shares and increase the maximum proceeds to $1.3 billion.
"Investors nowadays are very selective with new equities given the current market condition, but Goldwind's offering price range is very reasonable and its target amount is not very ambitious. The market response should be alright," said Peter Lai, an analyst at DBS Vickers.
There are no cornerstone investors participating in the deal and those who have shown interest in the company are questioning whether the development of China's wind power industry is going to be sustainable, and whether the level of government support for the sector is sufficient, according to bankers involved in the deal.
The company decided to list in Hong Kong instead of the US partly because it is already listed in Shenzhen, a banker said. Otherwise, the US market has been popular with China's renewable energy companies seeking to float their shares overseas — particularly the solar power companies. The latest such listing was completed last month by JinkoSolar, which raised $64.2 million in a US IPO. The company was forced to price its shares at the bottom of an $11 to $13 range, after encountering a lot of market volatility during the roadshow. Credit Suisse was the sole bookrunner for that deal.
Also in the US market is Nobao Renewable Energy, a Shanghai-based builder of geothermal-energy systems, which is seeking to reap as much as $180 million through a listing on the New York Stock Exchange. Citi and UBS are the bookrunners.
Goldwind recorded a net profit of 1.74 billion yuan ($255 million) in 2009, up 92% from 906 million yuan the previous year, according to a preliminary IPO prospectus.
