LDK Solar Raises Cash Offer to Investors
NEW YORK (
) --
LDK Solar
(LDK)
upped the cash sweetener offered to holders of its convertible bonds due 2013 to not invoke a right in April to force LDK to repurchase the notes. Such a move by convertible noteholders could cost LDK Solar $398 million in cash.
LDK Solar announced early on Friday that it would now offer convertible noteholders an amount no more than $100 and no less than $85 per $1,000 of convertible notes held, to accept a new convertible note also due in 2013, but without the April cash-out provision.
LDK's first offer of a cash sweetener to noteholders was for a range of $60 to $85.
>>LDK Solar Tries to Avoid April 'Pay Me' Date
At least one U.K.-based broker has been vocal in saying that LDK had no choice but to up the cash offer because the Chinese solar company simply can't afford the April pay-me date.
>>Squeeze LDK Solar, Broker Saysy
This broker, Mint Partners, wrote clients after LDK announced the sweetened bid to say that it's still not enough. In fact, Mint Partners is telling clients that LDK's improved offer should show convertible noteholders that they hold the leverage, and can still get more from LDK.
The U.K. broker wrote a note to clients on Friday instructing them to hold out for at least a $200 cash sweetener per $1,000 of convertible notes held.
"As predicted, this shows the position of strength for the convertible holders to negotiate better terms. We still feel holders can extract the terms we calculated in the original note and still think the stock is overvalued.
"While we applaud LDK Solar in recognizing that their original offer was too small we still maintain that bondholders should be holding out," Mint Partners wrote on Friday.
LDK Solar announced two weeks ago that it would be offering holders of convertible bonds due 2013 a $60-to-$85 cash sweetener if investors accepted a replacement convertible bond issue also featuring a 2013 maturity.
The issue of the LDK Solar convertible has been around all year. It was one of several overhangs on shares of the Chinese solar company. LDK's capital expansion plans, its agreement to early repayment of funds due to Germany's
Q-Cells
, and the fact that convertible noteholders had the right to demand repayment in April in the aggregate of $395 million all weighed on LDK shares.
The Chinese solar company announced a $9 billion loan package with the China Development Bank, and tight supply in the solar wafer market led to strong performance from LDK. LDK Solar shares have doubled this year and almost all the gains have come in the past few months as the loan package and wafer pricing strength occurred, and shorts ran to cover.
Yet LDK Solar's share gains this year look paltry compared to the LDK Solar stock price above $38 at the time of the convertible offering in 2008.
The problem for LDK is that the price at which it completed the convertible is close to four times its current share price of roughly $11, even after the Chinese solar stock's recent strong rally.
Mark Bachman, analyst at Auriga Securities, had said earlier this year: "With a strike price on the 2013 convertible debt of ~$39/ADS, we find it likely that the $400 million in outstanding convertible bonds will be put back to the company in April 2011."
LDK's offer of a cash sweetener to holders of the convertible bonds seems to concede that the Chinese solar company would like to avoid the April "pay-me" date, even with its strong backing from the China Development Bank.
Clive Bastow, a broker with Mint Partners, wrote in a note to clients that it doesn't believe LDK Solar has the cash to execute on its expansion plans for 2011 unless the put option is removed.
LDK is expanding its polysilicon plant operations, its cell manufacturing and its solar module business.
Mint Partners has a sell rating on LDK Solar shares.
The LDK Solar offer has begun and runs until Dec. 22. Piper Jaffray is LDK's financial advisor.
LDK shares were unchanged in premarket trading on Friday.
-- Written by Eric Rosenbaum from New York.
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