China's Suntech Power (STP) Holdings rises on IPO

Solar power firm shines in its IPO


WASHINGTON—Suntech Power Holdings Co. capitalized yesterday on investors' enthusiasm for solar power-cell makers with an initial public offering that lit up the market.

Suntech shares closed at $21.20 (U.S.), up 41 per cent from the initial public offering price of $15 on the New York Stock Exchange.

The Chinese company sold 26.38 million shares at the high end of the expected price range of $13 to $15.

It was clear earlier this week that investor demand was strong for the offering, and underwriters Credit Suisse First Boston Corp. and Morgan Stanley raised the price range from the $11 to $13 a share planned at the outset.

Suntech's debut follows last month's gains by SunPower Corp., a California-based solar-cell maker.

SunPower's stock rose 41 per cent on the first day of trading and is currently up 55 per cent from the IPO price.

Both stocks are benefiting from investor interest in alternative-energy companies as the prices of oil and natural gas have climbed this year.

Solar power becomes more economically viable when traditional forms of energy are expensive.

At the same time, government subsidies and tax breaks for solar power usage is growing worldwide as oil and gas reserves diminish.

Suntech's offering is considered even more attractive than those from some of publicly traded peers, such as SunPower, because the company has managed to turn an annual profit since 2003, only a year after the start of operations.

Most of Suntech's rivals, however, are still unprofitable.

For the first nine months of 2005, Suntech's net revenue rose 188 per cent to $137.0 million and net income grew 129 per cent to $20.1 million, compared with the same period in 2004.

Suntech has the advantage of lower labour costs than those of rivals outside of China, but it is also producing more.

The company's 120 megawatts of production capacity is expected to double to 240 over the next year, a level none of Suntech's competitors is expected to match, according to Renaissance Capital, an IPO research firm based in Greenwich, Conn.

As is the case for all solar cell makers, Suntech's business is constrained by the scarcity and rising cost of the primary raw material: silicon wafers.

Suntech is using about $100 million raised in the IPO to purchase or prepay for raw materials, $40 million to expand the company's manufacturing line, and $20 million to fund research and development.

Suntech has already secured all the raw materials it will need to accommodate demand for the company's products into 2006, chief financial officer Amy Yi Zhang said.

The company expects its low labour cost to remain a significant financial advantage for the next decade, added Stuart Wenham, Suntech's chief technical officer.

FROM TORONTO STAR, DOW JONES NEWSWIRES and ASSOCIATED PRESS