Banking & Finance, ESG, Talking Point

A new dawn

China’s ‘Sun King’ plots a stock market comeback with Asia Silicon IPO


Shi in 2006 as he built Suntech into a green giant – more recent photos of the eco-entrepreneur are hard to find

Once seen as a sultan of China’s solar industry, Shi Zhengrong enjoyed his moment in the sun. In 2006 Forbes magazine titled him as China’s richest man after Shi’s solar panel firm Suntech Power became the first private-sector company from China to go public on the New York Stock Exchange. Two years later the UK’s Guardian newspaper was still praising him as one of the “50 people who could save the planet”, alongside the likes of Al Gore and Leonardo DiCaprio, for his company’s contribution to fighting climate change.

But the adulation didn’t last. China’s solar industry crashed back to Earth as overcapacity crippled companies like Suntech, which had been expanding at breakneck speed. Internationally the crisis was exacerbated by a slump in demand after the 2008 global financial crisis, as well as a series of anti-dumping rows in the US and Europe.

When WiC last reported on Shi in 2013 (see WiC187) it was because Suntech was on the brink of bankruptcy. Shi was also being investigated on concerns that funds had been improperly transferred from Suntech into Asia Silicon, an unlisted firm under his control.

But the solar power tycoon is now preparing to make a comeback, with an application for that same Asia Silicon to launch an initial public offering on Shanghai’s STAR Market.

So what does Shi’s reappearance on the solar scene tell us about the current state of China’s renewable energy sector?

Recapping Shi’s stellar rise

Long-time WiC readers may recall Shi’s extraordinary story. He and his twin brother were born in 1963 to a poor family in Jiangsu province. He was given away to a neighbour at a time when the country was struggling to recover from a period of famine. Poverty motivated him to study harder than most of his peers, enrolling in a university in Changchun at 16. Later Shi earned a scholarship to study in Sydney under the famed Australian solar scientist Martin Green, receiving his PhD in electrical engineering in 1991 when he was only 28.

Shi returned to China in 2000 with a dozen or so patents in photovoltaic technology, plus a 200-page business plan. He received $6 million in seed money from the government of Wuxi in his native Jiangsu. Fuelled by strong policy support, including subsidies and land for his manufacturing plant, Shi set up Suntech, growing it into the world’s leading solar panel maker. “Suntech is a seed sown by the Communist Party of the Wuxi government,” he acknowledged in a speech to welcome Yang Weize, Wuxi’s Party Secretary, to the company’s new headquarters in March 2011.

By then Suntech had already manufactured enough solar panels to generate at least 1,000 megawatts (MW) – enough to power a million American homes. At its peak Suntech was valued at more than $16 billion on the NYSE (it listed there in late 2005).

And the dramatic fall…

The problem for Shi was that the government’s focus on the solar power sector sowed many of the seeds for the company’s demise. Suntech’s growth model was being copied all over the country. According to China Energy News, at one point there were at least 600 cities promoting the manufacturing of solar energy equipment as a ‘strategic industry’ for their local economies. More than 100 start-ups mushroomed, trying to rival leading companies like Suntech or LDK Solar (from Xinyu in Jiangxi province).

Capacity in solar panel production rocketed from virtually nothing in 2000 to nearly 40 gigawatts (GW) in 2013, most of it made for export. Companies were counting on demand from overseas continuing to grow. But the 2008 global financial crisis dealt a heavy blow to PV panel prices as governments around the world cut back on subsidies for would-be customers. Suntech was badly exposed after more than doubling production capacity between 2009 and 2012, as well as committing to long-term supply contracts (see WiC200).

With prices for solar panels plummeting fast, European producers were also demanding anti-dumping levies on Chinese exporters, sparking threats of a wider trade war (see WiC197).

Suntech struggled on until it defaulted on a $541 million bond payment in March 2013, triggering cross-defaults on a number of its other liabilities. Eight of the country’s leading lenders pushed for bankruptcy proceedings as Suntech’s shares plunged to less than $1 from a peak of $90. After a bitter battle, Shi was ousted as the company’s chairman and CEO.

Anxious to keep Suntech afloat, the Wuxi government offered to back Suntech financially on the condition that Shi pledged his personal assets as a guarantee, China Energy News reported last month. But officials failed to persuade him to agree to the terms. Suntech collapsed, becoming one of the most spectacular failures in Chinese corporate history. Amazingly the liquidation process remains ongoing, China Energy News says.

How about Asia Silicon?

Back in 2013 Chinese newspaper CBN reported that Asia Silicon had signed a long-term deal to supply $1.5 billion of polysilicon products to Suntech. The amount of raw materials supplied by Asia Silicon to its failing sister firm was unclear, alhough the report in CBN claimed that the contract looked “suspicious” because it came with a series of advance payments and interest- free loans.

According to PV Blackhawk, a WeChat-based blogger who focuses on the PV industry, Asia Silicon seemed to offer a way for Shi to stay in the industry. This “backdoor” route could have been why he declined the Wuxi government’s restructuring offer. Shi then dropped out of the media spotlight for several years. PV Blackhawk notes that he began to reappear a couple of years ago. Last November a start-up that he controls called Sunman secured $12 million in fundraising for the development of a new type of PV panel invented by Shi’s technical team. Yet the most eye-catching news came from the Shanghai Stock Exchange, where an update of IPO candidates revealed that Asia Silicon had filed its listing documents ahead of a planned Rmb1.5 billion debut on the STAR Market.

The preliminary prospectus suggests Asia Silicon is now based in Qinghai but dates the company’s origins back to 2006, when it was founded a few months after Suntech’s NYSE listing. Its chairman and general manager is Wang Tehui. Wang was a leading scientist at the US National Renewable Energy Laboratory, PV Blackhawk reports, before he returned to China to work briefly at Suntech. Another feature of Wang’s background is that he is “a good friend of Shi Zhengrong”. Shi and his wife will control a 58% stake in Asia Silicon after it potentially makes its market debut.

Will investors have faith in Shi?

Asia Silicon plans to boost polysilicon sales to new customers, going public at a time when the photovoltaic sector is back in vogue with investors. But bondholders and equity investors were badly burned by Suntech’s demise. The way in which Shi parted ways with the Wuxi government saw him lose much of the status he had enjoyed in the solar sector in the mid-2000s too.

So it won’t be too surprising if Shi’s comeback irks some of his former foes. “China’s richest man, who the people of Wuxi hate the most, has returned,” ran the title of one article in Huashang Strategy, which specialises in biographies of leading businesspeople.

“Suntech’s liquidation involved 500 creditors and more than Rmb17 billion ($2.61 billion) of liabilities,” the author recalled this month. “But worse than the company’s bankruptcy is the bankruptcy of a businessman’s trustworthiness.”

So Shi needs to reinvent himself on the solar scene too?

Another focal point for Shi is the promotion of Sunman’s new design of lightweight, glass-free solar panels that can be glued onto a wider range of surfaces.

Traditional solar panels are made of heavier glass that needs to be laid on flatter rooftops. At least 40% of commercial roofs can’t “accommodate the weight or uplift of glass solar modules”, Shi explained to the Australian media last year.

Sunman’s panels are also more malleable, the company says, making them easier to install on curved roofs and walls or even on the tops of buses and trains.

Shi’s bet is that the lighter panels will open up a major market opportunity in places where solar PV sales have previously been impossible. Payback periods of about two and a half years for building owners should help as well.

What’s more, he is bringing the glass-free panels to market at a time when other solar firms are facing shortages of glass supply. New policies from the Chinese government have curtailed production at glassmakers that breach energy intensity targets, putting new pressure on output.

Of course, Shi’s second act comes at a time when policymakers are looking afresh at renewable energy in general, following a high-profile pledge by Chinese leader Xi Jinping. Xi at the UN General Assembly last September that committed China to carbon neutrality by 2060, with a peak in carbon emissions by 2030. The promise has triggered new interest from investors across the renewables sector. “Cutting carbon emission is not only a national strategy. It has been elevated to the heights of ‘the common destiny of mankind’,” marvelled China Energy News, using a phrase now favoured at elite policy levels in Beijing.

In pursuit of the new goal, energy consumption and carbon emissions per unit of GDP will need to be reduced by 13.5% and 18% respectively this year, according to the State Council’s government work report, which was published earlier this month. Interim rules for a carbon trading market were introduced in February to help drive down emissions from major polluters too (see WiC530).

These policy tailwinds should propel another round of investment in renewable energy, although the major difference from 15 years ago is that much of the new capacity will be put to work domestically in China, forming a key plank in Beijing’s so-called “internal circulation” economic strategy (see WiC508).

The impact is already being felt in stock markets, underscored by the share price spikes of a series of new energy firms since the second half of last year. Take GCL-Poly, a Hong Kong-listed supplier of polysilicon and wafers, whose shares surged nearly 10 times between November and February. Shares in Longi Silicon Materials, a key client of Asia Silicon, have also climbed nearly 60% over the past nine months.

How high can Shi fly this time?

The pressure is on Shi to get Asia Silicon onto the STAR Market in Shanghai. PV Blackhawk has reported that Asia Silicon struck a deal in 2018 in which it undertook to buy back a 13% stake from a group of financial investors should the PV firm fail to go public before 2022.

Some analysts speculate that post-IPO the firm will invest in Sunman. Shi, of course, has a history of connected transactions.

However, Asia Silicon’s IPO plan still needs the blessing of Chinese regulators. This is far from certain: as we reported in WiC531 a recent trend has seen listing candidates withdraw their applications because of shoddy filings or probes (at least 60 did so since January).

And as PV Blackhawk also notes, both Shi and his wife have become Australian nationals. The darkening of diplomatic relations between Beijing and Canberra over the past year could make Shi’s comeback trickier too…

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