Shunfeng shareholders help impressive annual figures

What’s in a name? Try asking shareholders of Shunfeng International Clean Energy Ltd, which changed its brand in November and yesterday (Thursday) published what appears to be a blockbusting set of annual results.

The headline figures produced by the company formerly known as Shunfeng Photovoltaic International Ltd. are astounding wherever you look – revenue from solar product sales up 241.9 per cent to RMB5.2 billion ($836 million), including a 2,746 per cent rise in revenue from module sales from RMB85.5 million ($14 million) to a staggering RMB2.3 billion ($370 million); total revenue up from RMB1.5 billion ($241 million) to RMB5.7 billion ($917 million); gross profit up 741 per cent from RMB151 million ($24 million) to RMB1.3 billion ($209 million); and net profit up to RMB1.3 billion ($209 million) from a RMB1.8 billion ($289.5 million) loss a year earlier.

The quantum leap in the scale of module production and sale revenues arises from the RMB3 billion ($483 million) acquisition of the production facilities of stricken former world number one Wuxi Suntech last April, which on the surface of it, appears to have been an unqualified success.

However scratching beneath the surface of the impressive figures at the top of the 45-page annual report reveals the company would have reported a net loss of around RMB1.4 billion ($225 million) without the help of two sets of bondholders who gave the company a RMB2.7 billion ($434 million) leg-up during 2013 and last year.

The biggest adjustment to the profit figures came from the removal of a RMB1.8 billion ($289.5 million) fair value loss attributable to convertible bonds issued in February 2013. The holder of the bonds agreed to split them into liability and equity conversion components six months after their issue, removing a 2013 millstone from around Shunfeng’s neck.

A second agreement last September saw the holders of a third convertible bond issue – undertaken last April to pay back controlling shareholder Cheng Kin Ming for paying the outstanding RMB2.5 billion ($402 million) balance on the Suntech deal – agree to waive their early redemption rights up to 2019, removing a further RMB992 million ($160 million) drag on the latest profit figures – although the associated redemption costs will still need to be met during the 2019-24 period.

With Cheng and his companies the biggest subscribers to Shunfeng bond issues of late, it is not hard to guess where the generous bondholders in question come from.

Behind the headline figures

A further delve into the report indicates just how big a gamble the Suntech acquisition by Cheng’s Shunfeng was and will add further grist to the mill of European and U.S. manufacturers who persistently accuse the Chinese government of unfairly favoring its solar sector.

Three months ago, Shunfeng’s current liabilities exceeded its current assets by RMB1.85 billion ($298 million) and the newly rebranded company had unpaid contractual commitments of RMB4.6 billion ($740 million) but banking facilities of just RMB151 million ($24 million), plus a further RMB19.4 billion ($3.1 billion) credit line assessed on a project-by-project basis.

That stark situation changed last month when the world’s largest bank, the state-owned Industrial Commercial Bank of China, rode to the rescue with a further RMB20 billion ($3.2 billion), five-year credit line, plus a further five-year option.

That too was provided on a project-by-project basis but Western critics will not the comment in the annual report that "the directors are confident that the group would be successful in obtaining approval in respect of the RMB20 billion facilities."

Preferential tax deals

SolarWorld and its allies will also note Jiangsu Shunfeng and ‘certain Wuxi Suntech subsidiaries’ have had their three-year preferential tax rate of 15 per cent extended for a further three years.

But the huge rise in revenue from the sale of polysilicon, wafers, cells and modules – not to mention the first income seen from power generation and solar plant monitoring secured through the acquisition of German company SAG Solarstrom in October – seem to indicate Cheng has turned around the supertanker.

Not content with being a solar manufacturer and developer, Shunfeng chairman Zhang Yi announced in the annual report to the Hong Kong Stock Exchange an aim to become "the largest global clean energy and low-carbon, energy saving integrated solar provider", and the acquisitions bolted on before the dust has settled on the Suntech deal illustrate how the company’s ambitions are ranging beyond solar.

The acquisition of a 30 per cent stake in energy storage and fast charging R&D company Powin has been followed by the Solarstrom deal, which brought 9.8 GW of solar power plants monitored by its Meteocontrol subsidiary under Shunfeng’s aegis.

Further deals followed for eight wind projects in China, totalling 723 MW in capacity; a strategic tie-up with Chinese ground-source heat pump leader Nobao Renewable Energy; the addition of the inverter and BIPV section of German company Sunways; an agreement to purchase a controlling stake in LED lighting company Lattice Power Corp; and a collaboration with Chinese electric vehicle (EV) manufacturer GreenWheel EV as well as investment in sea power technology and battery storage.

With Cheng having built his fortune as a real estate investor and his Shunfeng operation promising in its annual report to unveil low-carbon solutions on a household, community and city level this year – which it says will reduce carbon emissions by 50 to 70 per cent – the scale of his renewable energy ambitions is becoming clear.