Going Private — an Option for China’s Solar Companies?

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Chinese for-profit education company Ambow Education Holding Ltd. (NYSE: AMBO) got some bad news earlier this week. A proposed buyout by private equity firm Barings Asia Private Equity Fund V L.P. was withdrawn following the resignation of three Ambow directors and the firm’s independent auditor. The company’s shares have been suspended from trading on the NYSE.

In the past three years, some 40 China-based firms have announced deals to take the company private and nearly half the deals have been backed by private equity firms. One of the largest is the $3.7 billion deal to take private China’s premier display advertising firm, Focus Media Holding Ltd. (NASDAQ: FMCN). The Carlyle Group L.P. (NASDAQ: CG) is joining with the company’s CEO in the buyout.

Other recent take-private deals include one for Zhongpin Inc. (NASDAQ: HOGS) and another for fertilizer maker Yongye International Inc. (NASDAQ: YONG). Zhongpin’s chairman is taking the company private on his own, and Yongye’s CEO is getting help from a branch of Morgan Stanley (NYSE: MS). Carlyle Group is also involved in going-private deal worth $688 million for 7 Days Group Holdings Ltd. (NYSE: SNN). Chinese pharmaceutical maker Simcere Pharmaceutical Group (NYSE: SCR) also got an offer from its chairman to take the drug maker private.

One question follows from all this activity: what about China’s struggling solar makers? Now that Suntech Power Holdings Co. Ltd. (NYSE: STP) is no longer a factor, it is interesting to speculate on the possibility of a take-private deal for one of the other solar players. Names that spring immediately to mind are LDK Solar Co. Ltd. (NYSE: LDK), Trina Solar Ltd. (NYSE: TSL), Canadian Solar Inc. (NASDAQ: CSIQ) and ReneSola Ltd. (NYSE: SOL).

LDK has issued 12 million newly minted shares to Fulai Investments, giving the firm about 11% of the company. A state-controlled firm owns another 20% of LDK. With a current total market cap of just $141 million, LDK would seem ripe for a take-private deal, especially after shedding one of its largest plants to a provincial government. A government-engineered takeover is more likely here due to the government’s heavy involvement with LDK already.

Trina is one of the companies expected to get some benefit from the downfall of Suntech. The company says it will meet $83.5 million loan payment due July 15. There has been no indication that Trina is being targeted for a take-private deal, but with a market cap of around $260 million the opportunity is there.

Canadian Solar, with a market cap of just $150 million, could be another take-private candidate. The company has a solar installation business, and that promises to help make up for the low prices for wafers and modules. Earlier this year the company got a $40 million loan from Credit Suisse to acquire four projects in Ontario.

ReneSola just received a $51 million loan from a Chinese government-controlled bank, and with a market cap below $125 million, this one is the cheapest of the bunch. But again, the government stake in ReneSola is a negative to taking the company private.

Perhaps the biggest issue with taking a solar company — or any other for that matter — private is how good the chances are that the company can be floated to the public again. No private equity fund is going to bail in to a deal without a clear plan for bailing out. There are not likely to be a lot more buyers for solar makers in another two or three years.

For founders and company executives, taking a Chinese firm private could be a matter of pride. Because these are the very guys who drove the companies to the brink of extinction in the first place, partnering with them seems needlessly risky. Suggestions that firms might consolidate also are unlikely to get much traction in China, again mainly as a matter of pride.

As with so many things in China, the government likely will be responsible for picking winners and losers in the solar business. The government surely could have rescued Suntech, but chose not to. On that basis, the loan to ReneSola is encouraging for that firm.

From here, though, LDK continues to look like the next target, and it will not be a buyout but a government takeover in some form. Trying a merger arbitrage play here, just in case a buyer should pop up, could be a safe bet with some possible upside if the government eventually does ride to the rescue.

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