GCL concern over senior notes due January 30

The heavily-indebted solar project subsidiary of polysilicon manufacturer GCL-Poly has warned the holders of US$500 million of senior notes due to mature this month it may not be able to honor the investment.

An update to the Hong Kong Stock Exchange just before Christmas warned: “The company [GCL New Energy Holdings Ltd] estimates that its existing internal resources may be insufficient to repay the existing notes.”

Holders of the 7.1%-interest-bearing notes – issued on the Hong Kong stock market three years ago – have been asked to swap them for 9.75% notes on the Singapore Exchange, which would mature in three years' time. Under the terms of the proposed deal, note holders would exchange each US$1,000 worth of the investment for US$950, a US$50 cash consideration, a US$10 “instruction fee” and any interest accrued on the existing notes, plus a cash settlement for any fractional note holdings.

Debt restructure

Crucially, investors will also have to agree to back any debt restructuring plan which takes place in the event of the senior note swap falling through, with GCL stating the transaction will only take place if the holders of 90% of the notes – $450 million worth – agree to the arrangement. The financial update issued by the company on December 23 added the proposal would see GCL replace the existing notes with “up to [US]$475 million” of new notes, without explaining the US$25 million shortfall implied in any new issue. The poly maker stated it would reserve the right to cancel the proposed notes swap in the event of any “adverse development in the market” or if the deal be deemed not to be “in the company's best interest.”

With the notes due on January 30, holders have until January 13 to sign up to the deal – and to sign away their right to oppose any subsequent company restructure, the terms of which may only be waived or amended by the company and the holders of more than half the senior notes in question.

GCL said it had been forced to request the postponement of its debt because it was owed RMB9.17 billion (US$1.42 billion) in solar subsidies at the end of June and had net current liabilities of RMB6.51 billion at that point. The company warned a failure to postpone settlement of the notes would trigger a cross-default of debts.

The polysilicon manufacturer has ramped up efforts to sell off its solar park estate in China and there was a further flurry of sales over the festive period as state-owned entities continued to cherry pick projects.

The day the senior notes news broke, GCL announced another proposed project sale, of three projects with a generation capacity of 90 MW to Hunan Xinhua Water Conservancy and Electric Power Co Ltd. The sale price of RMB140 million (US$21.7 million), dividend windfall of RMB61 million and payment of liabilities owed by the projects to GCL of RMB61 million are expected to generate RMB203 million for the seller and will remove RMB480 million in liabilities from GCL's books even as the transaction marks a RMB20.8 million loss for the seller, based on the value of the solar farms.

Profitable sale

On Wednesday, GCL announced another, 30 MW project sale to Hunan Xinhua, which is 99.6% owned by the China National Nuclear Corp and the Ministry of Water Resources. That second deal would actually mark a RMB2.78 million profit for GCL, which would bank a net RMB70 million from the sale of its 51% holding in the project.

December 28 was another busy day for GCL shareholders, who voted through a previous sale of six solar projects while learning of a proposed deal to sell another 217 MW of generation capacity in Anhui, to Xuzhou State Investment and Environmental Protection Energy Co Ltd. That sale would net the seller RMB985 million (US$152 million) and remove another RMB951 million from the company liabilities column whilst constituting a net loss of RMB27.4 million on project value. It will be voted on by shareholders on January 15.

In a further effort to pay down debt, the Elite Time Global entity which holds GCL-Poly's controlling stake in the GCL New Energy project business proposed, on December 29, watering down its 62.28% holding to 58.94% by selling 638 million shares for HK$0.235 (US$0.03) each, to generate net profits of up to HK$145 million (US$18.7 million).