New Private Equity Giant Eyes Solar Buys

Minsheng Investment eyes solar consolidation

Following reports last month of the imminent formation of a major new private equity investor, media are now saying the company, China Minsheng Investment, has formally registered and is gearing up to make its first investments. The new company certainly has the resources and connections to quickly become a major player on both the domestic and global private equity scenes, with an initial 50 billion ($8 billion) in registered capital. Now it appears the company will start by helping to consolidate China’s embattled solar panel-making sector, which will become its first focus area.

According to the latest reports, Minsheng Investment formally completed its registration on May 9 in Shanghai, which is where several of its founding members are based. (Chinese article) One of its founders is Dong Wenbiao, chairman of Minsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first privately funded bank. Previous reports said other Minsheng Bank officials would also invest in the new company. Another partner is Lu Zhiqiang, chairman of Beijing-based China Oceanwide, one of the country’s earliest conglomerates set up back in 1985.

Dong Wenbiao will act as chairman of the new company, while another Minsheng executive Li Huaizhen will be the general manager. The report adds that many of the new company’s other top executives will also come from Minsheng Bank. That’s a positive sign since Minsheng is considered one of China’s more entrepreneurial banks due to its private status, meaning it’s less likely to make decisions based on political considerations.

That said, many of the company’s top officials also have strong government connections, and its decision to focus initially on the solar panel sector also seems to have some political overtones. Beijing decided about a decade ago to strongly support the sector by offering a wide range of government support, in a move that quickly propelled China to become the world’s largest solar panel producer with more than half of the global market.

As with similar cases in China, many companies that flocked to the industry were state-run firms that had little or no experience in the sector but were simply rushing to help fulfill Beijing’s latest policy directive. Many of those facilities have been losing big money for the last 3 years, after the sector plunged into a prolonged downturn due to huge overcapacity created by the rapid China build-up.

Early signs last year seemed to indicate Beijing was preparing to engineer a consolidation for the sector, using the policy lender China Development Bank as the main driver. But such a unified rescue plan never came, and instead the market has so far seen a trickle of bankruptcies for big names like Suntech (OTC: STPFQ) and LDK (OTC: LDKSY), and occasional acquisitions of smaller companies by big remaining players.

Beijing has indicated it won’t come to the rescue of bigger players like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ), which are relatively healthy and can still raise limited money from overseas commercial sources. (previous post) But there are still dozens and probably hundreds of smaller state-run operations that are losing massive money and could become good acquisition and consolidation targets for the new Minsheng Investment.

We’ll have to wait and see how exactly Minsheng Investment proceeds, but I would expect it to move quickly following its recent registration and make its first acquisitions in the next few months. Most of those are likely to come at bargain prices, and the company could use its large cash pile to quickly assemble one or two major new “companies” with assets across China.

It would most likely shut down many of the weakest operations and move their best manufacturing assets into one or two single locations. Such an approach could produce an asset or two that would make an attractive purchase for Canadian Solar, Yingli or one of the other bigger remaining players in the sector, or even a foreign buyer. I would expect Beijing to provide financing for such a deal, which could come as soon as next year if Minsheng’s consolidation plan moves ahead.

Bottom line: Newly formed Minsheng Investment could become a consolidator for China’s smaller money-losing solar panel makers, assembling a new asset for eventual sale to one of the bigger remaining players.

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