Solar Company’s Stock Dims as Major Stake Sale Fizzles

Shares of solar company GCL-Poly Energy Holdings Ltd. fell sharply on Monday after the company announced the scrapping of a plan to sell a majority of its core business — making polysilicon wafers — to Shanghai Electric Group Co. Ltd.

The collapse comes shortly after China slashed its generous state support for building new solar farms, which has caused the broader market to sag and the nation’s many panel-makers to cut back output and consider layoffs.

GCL and Shanghai Electric had originally announced their plan in June, but on Friday said in separate statements they had decided to terminate the deal after failing to reach a final agreement. Under the original plan, Shanghai Electric had been preparing to buy 51% of GCL’s Jiangsu Zhongneng Polysilicon Technology Development Co. Ltd. unit in a deal that valued the unit at up to 25 billion yuan ($3.66 billion).

GCL shares fell 7.6% in Monday trade in Hong Kong, and have lost more than a quarter of their value since a brief rally following the original deal’s announcement in early June. Shares of Shanghai Electric rose by 1.6% for the day.

GCL said the two sides walked away from their plan after failing to reach agreement on unspecified issues.

“In view of the size and complexity of the transaction, the parties found it difficult to reach a full agreement on the relevant terms and plans for the potential disposal in a short time frame,” GCL said. “Both parties believe that the timing and conditions for proceeding with the potential disposal are not mature enough, and therefore have mutually agreed to terminate the framework agreement.”

Shanghai Electric also referred to the deal’s complexity and the relatively short time frame for closing the deal as factors behind the decision to scrap the deal.

“Both parties to the transaction believed that the timing and conditions for continuing to advance this material assets reorganization plan were not favorable, and thus agreed to terminate the framework agreement on acquisition of equity interest of Jiangsu Zhongneng Polysilicon Technology Development Co. Ltd.,” Shanghai Electric said in its own statement.

UBS analyst Alex Liu said the Monday sell-off of GCL’s stock may have been influenced by broader weakness in solar shares, and that many observers may have been suspicious all along that the deal wouldn’t be able to close due to GCL’s aggressive valuation.

“Instead of rallying post the announcement of the deal, GCL’s share price has dropped by 13% since June 6,” he wrote in a note. “According to our communication with investors, we don’t think the market has priced in a successful completion of the deal. Therefore, we think the market won’t react too negatively to the termination because it is apparently not in GCL’s current valuation at all.”

Liu added that termination of the deal could prompt GCL to revive an earlier plan for a separate listing on one of China’s domestic stock markets for Zhongneng Polysilicon, which makes the polysilicon wafers that are the main ingredient in solar panels.

GCL was trying to sell the unit as China’s broader solar panel sector comes under pressure due to global oversupply, exacerbated by Beijing’s recent cutbacks in state support for building of new solar farms. The Beijing policy changes, which were announced in June shortly before the GCL deal, have led many of China’s solar panel makers to trim output and consider cutting jobs.

Contact reporter Yang Ge (geyang@caixin.com)