IPO Darkens China's Solarfun

A funny thing happened at the tail end of the 2006 IPO market: Two nearly identical Chinese solar-panel companies went public. One rose while the other dropped. A look at why suggests that investors are still doing their homework when it comes to evaluating new offerings.

The two companies are Trina Solar (TSL Quote) and Solarfun Power Holdings (SOLF Quote). Both were young with surging revenue. Both were profitable. Both saw revenue growing. Both were struggling with the shortage in silicon, which is expected to keep prices mounting for several more years.

Yet Trina has held close to its offering price while Solarfun dropped like a stone on its first day.

I looked at Trina Solar last week, but Solarfun contrasts in telling ways. Most notably, the stock -- which priced at $12.50, the midpoint of its range --dropped to $9.91 on its first day of trading. Although it closed at $12.06 on Friday, it has yet to trade back above its offering price.

Why? Solarfun was a little greedier than Trina, for one. There were simply more shares to go around. Whereas Trina initially filed to raise $66 million and ended up raising $98 million after it lifted its offering price, Solarfun filed to sell $186 million with 12 million American depositary shares (equal to 5 Solarfun shares) priced between $11.50 and $13.50 a share.

Like its competition, Solarfun appears to be on sound financial footing. The numbers it gives in its Securities and Exchange Commission filings show that the company has been profitable at the operating and net levels in 2005 and 2006, impressive given that its operations began bringing in revenue only in August 2004.