China Investment Corporation (CIC), China
's sovereign wealth fund, will join hands with GCL Poly Energy (GCL) to invest HK$7.5 billion in the photovoltaic industry. CIC chairman Lou Jiwei has been worried about the global middle- and long-term inflation expectations and is looking for commodities such as energy, minerals, and real estate as inflation hedging instruments.
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In June, GCL acquired Jiangsu Zhongneng Polysilicon Technology. CIC opened contact with GCL in June, and inspected it and its subsidiary Jiangsu Zhongneng for three consecutive months, and announced initial investment intention at the end of October.
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HK$2 billion will be used to set up a joint venture to develop solar photovoltaic projects, with GCL holding a 51% stake and CIC taking the rest. HK$5.5 billion will be used to purchase 3.108 billion new shares of GCL, giving CIC a 20.09% stake. HK$1.79/share is lower by 23% than HK$2.31/share price before suspension on Monday. The two sides are expected to establish the joint venture within a few months.
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GCL says it plans to use the net revenue raised as general working capital, to repay corporate lending, to explore new business opportunities, including but not limited to investing in and developing the joint venture with CIC, and to develop PV projects or other solar projects.
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Under the agreement, its 20.09% stake ensures CIC two seats on GCL's board of directors. Zhu Gongshan, GCL Chairman and CEO, indirectly holds a 48.43% stake in the company, while another two major shareholders are Morgan Stanley and Poly Hong Kong, holding 16.25% and 13.86%, respectively.
The new joint venture will become an independent subsidiary of GCL, at the same level as Jiangsu Zhongneng, which has become China's largest polysilicon company, producing 1850 tons of polysilicon in 2008. Its 2 billion yuan profit is far higher than the profits of any of GCL's power plants.
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There will be a clear division of labor between the new joint venture and Jiangsu Zhongneng. The latter will be in charge of polysilicon production and running the domestic power plants, while the former will manage foreign power plants. In the first half of this year, GCL conducted research on many power plant projects in the US and Europe, but has not made substantial progress there due to the lack of large-scale investment capital. Combining with CIC may solve the problem.
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Listed in Hong Kong in 2006, GCL Poly Energy is a new energy enterprise focusing on polysilicon business, and owns combined heat and power and waste power generation, and wind power companies.
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CIC's move in the energy field marks its second this month after investing $1.58 billion in AES Corporation, an electricity generator, on November 6.
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This is the first time for CIC to purchase a Hong Kong-listed company with new energy assets in mainland. The proportion of new energy investment in CIC's portfolio is gradually increasing.
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Before investing in GCL, CIC had studied a lot of similar companies. It believes investment into new energy should be long-term to improve its ability to resist risks.
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There are still arguments over a polysilicon investment surplus, but in fact the surplus is mainly due to low-end technology. This year China still needs to import 50%, about 15,000 tons, of its polysilicon. Projects with single-line production capacity of more than 3000 tons and with closed-loop device can still get approval from the state.
As of October, many polysilicon firms suffered losses, among them Xinguang Silicon. Jiangsu Zhongneng now owns three 5,000-ton polysilicon production lines, and produced 4,266 tons of polysilicon in the first three quarters, combined with a previous 3,000 tons of production capacity, becoming one of the world's three major polysilicon manufacturers.
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