LDK Solar Raising Cash, but Shares Drop

(LDK Solar article updated for closing price and volume)

XINYU CITY, China and SUNNYVALE, Calif. (TheStreet) -- LDK Solar(LDK) is raising cash, but the market doesn't seem to like it.

Taken together, a private deal for a polysilicon plant and an equity raise, both announced Thursday, should raise nearly $200 million for the company -- $150 million from the 18.9 million shares to be offered and $50 million to $80 million from the private sale of a portion of the polysilicon business. But despite the capital raises, LDK Solar's shares ended Thursday's trading session down more than 15%, and trading at three times its normal volume.

The deal will help LDK to meet upcoming debt payments, but the market's reaction is not surprising, according to analysts.

Edwin Mok, an analyst with Needham, said investors always worry about dilution of shares in the equity raise. A second analyst, who did not want to be named, said it is typical with solar equity offerings for the stock to sell at a discount to the price that the shares were trading at when the offering was announced. The market, in effect, discounts the discount at which the offering will price.

There are also ongoing questions as to whether LDK can even execute on the full 18.9 million share sale detailed in a prospectus filed Thursday with the Securities and Exchange Commission. Morgan Stanley(MS) and Citigroup(C) will underwrite the offering.

Rumors had been rampant in recent weeks about a possible spinoff by LDK Solar of its polysilicon production business, or even an initial public offering on the Hong Kong Stock Exchange.

A public offering isn't going to happen, but LDK announced on Thursday morning right before the opening bell that it had signed an agreement with a Cayman Islands-based investor, VMS Investment Group, for between $50 million and $80 million in convertible preferred shares of a new subsidiary to house the polysilicon production business. The polysilicon entity to be newly created is being valued at between $1.3 billion and $1.65 billion.