Solar Returns to IPO Market After a Long Hiatus

NEW YORK (TheStreet) -- Solar energy companies are headed back to the initial public offering market. It's been quite a while since the last solar IPO in October 2010, but it's not any improvement in the solar sector fundamentals that is leading solar companies to again test investor appetite for offerings.

Pricing in solar, which had stabilized after a free fall in 2011, has started down again. The two biggest European markets are implementing significant solar subsidy reductions that will keep the demand visibility uncertain into 2013.

A strong bull market, on the other hand, is often just what the venture capitalists ordered when they are looking to exit portfolio holdings. With the S&P 500 about to close out the first quarter up around 12%, the time is ripe for IPO offerings. Yet solar stocks have not matched the action in 2012's early bull market run.

Take First Solar (FSLR), which declined 75% in 2011, then rallied by more than 30% to start 2012. It's currently posting a negative 26% return year to date. China's LDK Solar (LDK), and most of the Chinese solar companies, also rallied sharply after a disastrous 2011, but have seen almost all of those early year-to-date gains wiped out.

So should the response to the return of the solar IPO be "uh-oh," or is it a good thing?

The answer to this question begins with recognition that the last solar companies to go public, in 2010, wouldn't make it to the exchange today. Chinese solar companies involved in the most commoditized -- i.e. falling price -- points in the solar supply chain would have a difficult time making a case to investors. Thin film contenders to First Solar, like Nanosolar and MiaSole, which have talked about going public for years, also would find it difficult to market an IPO.

Pacific Crest clean energy analyst Ben Schuman noted, "Obviously, VCs are looking for an exit and lots of VC-funded later stage companies are module vendors that have had their value proposition come into question. There are a few stories where the business model isn't dependent on module pricing and that's where you can see successful IPO activity going forward."

In October 2010, when Chinese polysilicon maker Daqo New Energy (DQ) priced at $9.50, it was lower than its anticipated range. After two years of upheaval in the solar market, the lower-than-expected IPO price looks frothy. Daqo's current share price is $2.15.

When Chinese solar module company Jinko Solar (JKS) went public in May 2010, it priced at $11, the low end of its range. Jinko soared as high as $36 in late 2010 thanks to an unprecedented boom in the Italian solar market, but that was just good timing: Jinko trades at under $6.50 today.

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