With the Chinese government having ordered state-owned lenders to back its drive for subsidy-free solar projects, a bail-out fund has already been set up to help PV developer Panda Green Energy Group Ltd pay off a proportion of its substantial debts.
The developer – formerly the United Photovoltaics Group Ltd – has agreed to capitalize a $123 million loan which became due to the Qingdao Investment, state-owned solar investment vehicle last month, as part of its bid to pay down a debt pile that came in at RMB20.8 billion ($3 billion) at the end of June.
With around HK$1 billion ($127 million) set to fall due for repayment by May, Green Panda is seeking shareholder approval to issue new shares amounting to more than 68% of its existing stock, and up to 40.7% of the enlarged company.
In a stark warning to shareholders being asked to significantly dilute their investment, an announcement today by the board of directors about the planned institutional investor shares subscription stated: “Notwithstanding the view of the directors that the group has the financial ability to meet the interest payments accrued on the borrowings, the directors are mindful of the significant deterioration in economic and credit conditions that have affected the world economies in the past year.”
Fears of a hard landing for China
With economists yesterday estimating China’s economy grew at 6.6% in 2018 – its slowest pace for 28 years – Green Panda’s statement to the Hong Kong exchange added: “Given the uncertain economic outlook in the near to medium term, the group is well conscious of the risk that the company may not be able to obtain the necessary funding, either through debt or equity financing, or both, to repay or refinance the loan and indebtedness when they fall due.”
Under the terms of the company’s proposed turnaround plan, the State-Owned Enterprise Structural Adjustment China Merchants Buyout Fund (LP) will subscribe to up to 1,216,793,309 new shares, with the directly state-owned nature of the commitment evident in the fact that it is the only one of five subscribers to the scheme not to commit to a set number of share purchases at the agreed HK$0.3/share price. If it takes its maximum share option, the public entity would hold around 7.57% of the enlarged company.
The bailout fund is one of two entities nominated for the shares purchase by the British Virgin Islands (BVI) registered China Merchants New Energy Group Ltd (CMNEG), a subsidiary of China Merchants Group Ltd, with both organizations already substantial shareholders in Panda Green. The other CMNEG nominee is the Shenzhen City Guoxie First Equity Investment Fund (LP), a Hong Kong-based fund which would subscribe to 135,199,257 new shares for a 0.84% stake, and whose name suggests further public money invested by a local authority.
Directors see light at end of debt tunnel
The Qingdao Investment loan which became due last month will be capitalized by the creditor – Huaqing Solar Power Ltd – which would subscribe to 3,207,750,000 new shares to own 19.96% of the enlarged company.
The final shares subscriber would be BVI-registered investment holding company Asia Pacific Energy and Infrastructure Investment Group Ltd, which has agreed to purchase 1,043,286,680 shares, for a 6.49% holding in Panda Green.
The directors estimate maximum gross proceeds of HK$1.96 billion from the shares subscription, with HK$962 million offset against the Huaqing Solar Power loan to leave net proceeds of around HK$996 million to be devoted to “repayment of indebtedness which will become due in the first half of year 2019” plus working capital.
Despite the financial bind facing the company, the directors insisted there is a bright future for solar, and added: “The shareholder subscribers consider that under the global trend of green ecological transformation, the development of new energy business is expected to continue to thrive with the support of national policies, the concerted efforts of the stakeholders in the industry, as well as the attention of the public.”
A circular announcing details of the special general meeting that will be held to vote on the shares subscription has been promised by February 19.