Trina not ruling yieldco out, addresses criticism

On the back of the strength of the downstream solar business, China’s Trina Solar Limited said it was planning to spin off its PV project business from its manufacturing activities. Speaking at the World Economic Forum Meeting in China last week, CFO, Teresa Tan said a growthco model would likely be adopted, due to current issues with FIT subsidy payments and grid connection in its domestic market.

Agreeing with Tan’s comment that a growthco (focused on securing future assets) would be more appropriate for China than a yieldco (dividends are paid to investors through the sale of electricity), Bloomberg New Energy Finance analyst Nick Duan said, "Yieldcos are less practical for Chinese solar assets that are suffering from delays in subsidy payments and some idled capacity."

However, Yvonne Young, director of investor relations at Trina told pv magazine the company believes the FIT payment delays and grid connection issues are "temporary" and that the government "will eventually pay." It’s just "a matter of timing," she said.

As such, Trina has not ruled out the option of establishing a yieldco vehicle. "We haven’t decided yet to go with Growthco or Yieldco," said Young, adding, "but obviously with a yieldco model you need to receive stable operating cash flow from government FIT for the China solar projects in order to pay dividend, which become a challenge at present as everybody knows. However we don’t rule out the option of yieldco if the payment issue of FIT is solved."

Responding to how Trina expects to generate a stable revenue, when there are so many issues related to solar PV projects in China – where 80 to 85% of Trina’s 700 to 750 MW 2015 project pipeline is based – Young said that grid connection problems are not a nationwide issue, affecting just a couple of western provinces.

She continued, "For majority of our projects we don’t think connection become an issue, in particular DG projects are much faster in connections than utility scales since we have 30-40% of DG projects out of the 700-750MW target in 2015."

Meanwhile, she added, "We believe once the government has a clear guidance on payment timetable the projects will receive stable cash flow on timely basis. In the meantime … we are cautiously monitoring the payment situation and have the flexibility to hold back if the visibility of payment continues to be weak at the end of the year."

Young could not say the kind of future project growth Trina is targeting, due to the uncertainties in the market.

Criticism

Criticism was aimed at Trina’s spinoff plan, in light of its over US$1 billion debt and cash of $600 million as of June 30, 2015, combined with the aforementioned problems and the fact the majority of Trina’s pipeline is in China. Addressing the criticism, CFO, Tan, told pv magazine, "All investment has risk associated with the rewards. Spin off the downstream business will allow two segments to have their own financing platform since the manufacturing segment is quite different from the downstream segment.

"Our debt level is well within the comfort level for leveraging and we have maintained the debt to asset ratio at around 70% as of Q2. For manufacturing segment, the cash generated for the business along with the existing debt supported its operation and expansion. For downstream business, the financing will be slightly higher typical for this type of business.

"So, again, we believe spin off the downstream business will be better for the investors and future business growth with its own financing platform and the risk can be managed partially due to the overall macro environment for the solar power adoption."

Trina is planning an IPO as early as next year. Young says, however, the company is still assessing where it will be. "We are evaluating all of these markets ( China, HK, US) depending on the valuation and investors’ sentiments," she said.