A 492% China Premium Shows Why Solar Firms Are Heading Home
(Bloomberg) -- When a Chinese solar manufacturer that had been traded in New York for a decade held an initial public offering last month on Shanghai’s Star Board, it priced the shares at about a 9.6% premium to their U.S. counterparts.
A little more than a month later that premium has shot to 492%.
Shanghai-listed Xinjiang Daqo New Energy Co. now has a market cap of $23.5 billion, compared to a $3.97 billion valuation for New York-listed Daqo New Energy Corp. That’s despite the two firms having almost identical assets, according to Robin Xiao, an analyst at CMB International Securities Corp.
That nearly $20 billion premium goes a long way to explaining why Chinese solar manufacturers that once coveted U.S. listings are now targeting exchanges at home. U.S.-listed JinkoSolar Holdings Co. and Canadian Solar Inc. have also recently filed for their domestic units to have IPOs in Shanghai. Daqo, Jinko, and Canadian Solar are keeping their U.S. listing while seeking additional capital in the Chinese market.
“They can raise capital to grow their operations, and get a higher valuation than they did in the U.S.,” said Rene Vanguestaine, managing partner for investor relations consulting firm Christensen China Ltd., who has worked with Jinko and Daqo.
Xinjiang Daqo shares in Shanghai were up 0.2% to 79.26 yuan a share at 1:32 p.m.
While Daqo in some ways is unique in that its operations are mostly in Xinjiang, a region that has been targeted by U.S. trade officials for alleged labor and human rights abuses, it’s not the only company to achieve a premium in the mainland market. When Trina Solar Co. delisted from the New York Stock Exchange in 2017, it was valued at $1.07 billion. It was worth more than $5 billion after its first day of trading in Shanghai last year, and is now valued at more than $17 billion.
There are myriad reasons for the higher valuations in China. “A-share investors are more optimistic to the overall future growth of the solar sector,” said Robin Xiao, citing China’s accelerating path to President Xi Jinping’s net-zero targets, and domestic investors’ closer access to the business as Chinese firms dominate global solar manufacturing.
Xiao added that overseas investors are more cautious and concerned about the political and trade disputes between the U.S. and China compared with their Chinese peers.
While China’s solar industry has come under increased pressure as the Biden administration cracks down on alleged labor abuses in Xinjiang, so far there’s been no immediate pressure for them to delist because of the issue.
However, there are added costs and hassles for Chinese firms being listed in the U.S., such as separate legal and accounting teams, Yali Jiang, a BloombergNEF analyst in Hong Kong, said in a report. U.S. regulators are also tightening security reviews and auditing requirements.
“The brand visibility in the U.S. may not be worth the trouble of maintaining the listing requirements any more,” Jiang said.
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