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Solar Winners: LDK Solar

NEW YORK ( TheStreet) -- Needing to rush back to the capital markets to raise cash is nothing new among clean energy stocks, and LDK Solar (LDK) played to form on Thursday, raising $149 million -- before underwriter fees -- in a secondary deal of 12 million shares priced at $12.40.

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LDK Solar's balance sheet has always been highlighted as one of the worst in solar, though recent pricing in the wafer market has generated healthy levels of operating cash in recent quarters for the Chinese solar company. LDK has aggressive expansion plans in the polysilicon, solar cell and solar module business, and at the same time faces a "pay me" date on convertible offerings of up to $385 million in April.

LDK had offered convertible note holders an exchange offer in December to avoid the April "pay me" date, when the convertible note holders can demand cash for their holdings, but the offer only raised just under $32 million -- LDK had filed for up to $300 million in the exchange offer.

Given the LDK balance sheet, its expansion plans, and its convertible note "pay me" date, several analysts had written publicly of their expectation that LDK would be tapping the capital markets sometime soon. Yet LDK also received a big loan package from the China Development Bank for $9 billion in late 2010, which, combined with its recent quarters of healthy cash generation, seemed to ease fears about its cash situation.

Needham & Co. analyst Edwin Mok, who has a buy on LDK and a $23 price target, wrote on Thursday afternoon that he believes LDK will use the money raised on Thursday to pay off the remainder of its convertible debt, though LDK was only telling the sell side the raise was done for general corporate purposes.

According to Needham data, LDK's debt to equity ratio after the raise is about 2x (roughly $2.3 billion in debt to roughly $1 billion in equity). Needham sees this ratio declining further to 1.5x after the first quarter 2011.

Diluting existing shareholders with a secondary is usually a negative in terms of market reaction, with the standard take that shares will be priced at a 10% discount to current closing price.

For this reason, among others, the LDK equity raise, announced after the close on Wednesday and priced by Thursday -- at only a 5% discount to its closing price -- was if nothing else a well-executed transaction.

LDK finished trading on Thursday down less than 1%.

What's most notable about the LDK offering is the argument that it was the culmination of a multi-month marketing strategy to buoy shares ahead of an offering, and executed at a time when positive news for its shares balances potential negative news for the sector, and before a potential worsening in solar fundamentals.
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