Lion Point Capital offers $250m to support Canadian Solar’s go-private bid

In a 13D filing to the U.S. Securities and Exchange Commission (SEC) this week, New York-based Lion Point Capital — which holds roughly 12.3% of the Chinese-Canadian manufacturer’s shares — said it is willing to offer as much as $250 million to back the privatization bid. Shares of Canadian Solar jumped by more than 11% on Wednesday on the NASDAQ stock exchange in response to the news.

The investment firm's proposal comes nearly nine months after Shawn Qu — Canadian Solar’s chief executive, chairman and largest shareholder — first announced a tentative plan to take the company private on his own. Qu offered to snap up all outstanding shares that he and his wife, Zhang Hanbing, did not already own for $18.47 per share, representing a 7.1% premium to the company’s closing share price on December 8, 2017. Qu and his wife own roughly 23.5% of the company’s shares, which rose more than 40% throughout 2017, according to data from Reuters.

On Wednesday, Lion Point unveiled a preliminary term sheet offering a five-year financing package to Qu of up to $250 million to complement the funds that he had already arranged. The investment firm also said that it remains willing to provide additional funds on top of that sum, in order to further drive up the per-share price of the proposal, if necessary.

In its SEC filing, Lion Point said it initially bought shares in the company, which is based in the Canadian city of Guelph, Ontario, on the conviction that they were “significantly undervalued.” It added that it sees opportunities for Canadian Solar’s board to further unlock shareholder value by reducing operational expenses, buying back shares, improving communication with investors and considering strategic transactions such as a potential spin-off, a separate listing or the sale of parts or all of its business.

“Following the public announcement of the privatization proposal, Lion Point had conversations with several large financial and strategic institutions that expressed an interest in potentially providing financing,” it said in the SEC filing. “Lion Point has also indicated to the chairman that, based on its discussions with certain financial institutions and strategic investors, it may be able to significantly increase the size of the offered financing subject to governance, diligence and other conditions.”

Lion Point has put out a preliminary term sheet, pending due diligence and other conditions — including the need to bring unspecified third parties on board to provide financing — that proposes the provision of a five-year financing package, worth as much as $250 million. It said the funds would “backstop” the capital that Qu had already arranged for his initial privatization bid, while also driving up the per-share price of the proposal.

The investment firm added that it plans to review its investment in Canadian Solar on an ongoing basis. “Lion Point may in the future take such actions with respect to its investment in the issuer as it deems appropriate,” it said in the SEC filing, explaining that it may choose to initiate further discussion on the matter with Canadian Solar’s board regarding various ways to potentially drive up the value of the company’s stock.

Institutional investors currently hold about 39% of Canadian Solar’s shares, with their holdings valued at $321 million. Its largest shareholders include U.S. investment firm BlackRock, whose holdings account for about 4.06% of the manufacturer’s total market capitalization.

Canadian Solar has yet to comment on the matter. Earlier this month, it reported that its net revenues sank to $650.6 million in the second quarter of 2018, down 54.3% from the preceding three-month period. However, it shipped 1.7 GW of PV modules in the April-June period, up 23.7% from the first quarter. It expects to ship 1.5-1.6 GW of solar panels in the July-September period, with quarterly revenues forecast at roughly $790-840 million.