CHANGZHOU, China ( TheStreet) -- Trina Solar's ( TSL) secondary offering took the market and solar investors by surprise this week.

It wasn't the fact that Trina would conduct a secondary offering, as much as the timing of the deal. Trina was first out of the gate in terms of tapping the equity markets and diluting share price of existing shareholders, when, in fact, Trina is arguably in a better cash position that many of its Chinese solar peers.

Trina shares lost $2.54 in value on Thursday as a result of its 7.9 million share offering, priced Friday morning at $20.25. Trina shares have recovered somewhat on Friday -- in fact, leading returns in the solar sector with a 3.7% gain on Friday.

However, there were many questions raised as a result of the timing of the secondary offering, and Trina shares ended the week down by close to $3 in comparison with the previous weekly close.

As with any surprise event in volatile solar, conspiracy theories abounded in the wake of the Trina deal.

The Trina deal was done very quickly, no road show, just one Credit Suisse conference call with investors on Thursday after the prospectus was filed. For Trina backers, the hurried nature of the deal simply represented the ease with which Trina would find investor appetite for its shares. To others, however, the Trina deal smacked of a "rush" deal to stave off short-term financing needs.

On Trina's fourth-quarter conference call with analysts, the last question was asked by FBR Capital Markets' solar analyst Mehdi Hosseini. The FBR analyst asked Trina management if they would be free-cash-flow positive in 2010. Trina's management indicated the company would not be free-cash-flow positive.

It was the end of the fourth-quarter conference call tape, but for FBR's Hosseini, it's part and parcel of the "rush" deal that he believes Trina executed this week to meet short-term financing needs.

The tightening of lending policy by Chinese banks has been in the financial press for the past few months. While solar analysts have downplayed any impact on Chinese companies in the sector, the FBR analyst views the Trina deal as a sign that refinancing is hard to come by in China for solar companies.

Trina has $267 million in short-term debt coming due by the end of this year. In its fourth-quarter conference call, Trina said it would have capital expenditures of $250 million to $280 million in 2010. Trina -- the only Chinese solar company to file an annual report with the SEC so far -- has $476 million in cash, according to the filing. What's more, a majority of the spending is slated for the first half of the year, ahead of the feed-in tariff reductions in Germany.

The FBR analyst says the core issue of Chinese banks tightening their lending leads to the core problem of short-term debt held by Chinese companies being harder to refinance. "Any change in China's monetary policy has a huge impact," Hosseini said. "Trina is adding so much capacity and has $267 million in short-term debt coming due this year," the analyst added.

About its short-term debt, Trina gave some boilerplate disclaimers in its annual report, writing, "we might not be able to obtain extensions of these borrowings in the future as they mature. In the event that we are unable to obtain extensions of these borrowings, or if we are unable to obtain sufficient alternative funding at reasonable terms to make repayments, we will have to repay these borrowings with cash generated by our operating activities."

"In addition," Trina continued, "we estimate that our capital expenditures will be approximately $200 million in 2010 for capacity expansion. Our business might not generate sufficient cash flow from operations to repay these borrowings, some of which are secured by significant amounts of our assets, and at the same time fund our capital expenditures."

What's more, FBR's Hosseini argues that so much module inventory is being shipped that, sooner or later, Trina customers will push back, and then Trina's building an inventory that isn't automatically translated into cash. Other analysts have noted in this earnings season that while solar companies have talked about the "sell-out" quarters, annual reports have shown a higher level of inventory of finished goods than a complete "sell-out" should indicate. At the end of 2009, Trina reported $47.4 million in finished goods inventory, versus $28.1 million at the end of 2008.

FBR's Hosseini said, "People were caught off guard with this Trina announcement. People want to deny or say they are not worried about Chinese bank lending constraints, but it is what it is, and there is no clear answer."

Of course, what "is what it is" to the FBR analyst, is far from the way that other analysts and investors interpreted the secondary offering.

Adam Krop, an analyst with Ardour Capital, was also tilting toward the positive -- or, at least, benign -- view of Trina's secondary. "I'm not that concerned since Trina has a good amount of cash on the balance sheet and we think they can meet all of their capital spending needs in 2010. Maybe they just want to maintain a good cash cushion," Krop said.

A solar analyst who won't be issuing research on Chinese names until April -- and therefore could not be quoted by name -- said of the Trina deal, "the key here is the timing. Why now? One theory is that Trina can't get lending in China." However, the analyst took a much more positive view of the Trina deal.

He noted that the sell side has talked about the oversupply and the German situation and, as a result, has become a contrarian optimist about solar. "Maybe Trina sees the solar market getting worse and decided sooner rather than later was better," the analyst said. "I take the position of the positive conspiracy theory in this case. Trina sees something here, maybe a rush on equipment which would be a positive for the industry, and they want to lead rather than follow."

Krop believes the offering now could have more to do with Trina's expansion plans for 2011 than any shortfall of capital in 2010. "Obviously, existing shareholders aren't happy about it, but in this environment I think their balance sheet looks pretty good," Krop maintained.

The second solar analyst said he was not trying to downplay the fact that Trina has debt coming due, and that the timing of the Trina deal "remained a mystery," but he wasn't prepared to solve the mystery as being negative in nature. "Even with their current debt obligations, I think they could have waited a little longer," the analyst said, adding, "it may not be the optimum price point or most minimized share dilution, but Trina was first in line."

Krop said he didn't buy into the theory that a Chinese bank-lending crackdown had anything to do with Trina's secondary, though he said that given their cost structure and balance sheet, Trina could do a secondary at any point.

"It's perceived as uncertainty by the market, and there is more than Trina is willing to let us in on. Still, while we are not getting good clarity on the deal, I don't view it as a big concern," the Ardour Capital analyst said. "There is more than they are willing to let us know here, but that could just as well be a positive unknown," Krop added.

There was even talk from Trina investors on Thursday that Trina must have an acquisition up its sleeve and is building a war chest.

Nonetheless, FBR Capital's Hosseini remains firm in his conviction on the negative side of the latest solar sector conspiracy.

"I don't buy the cash cushion stuff. Trina's balance sheet, the mix of short-term debt and as much as $280 million in spending in 2010 speak a volume! The fact that Chinese banks are slowing lending is an argument that the bulls can NOT and should NOT escape nor ignore," Hosseini wrote in an email. "Facts are facts, but the bull argument, in my humble opinion, is based on an 'overly inflated speculative argument.'"

In fact, facts were the primary factor missing in Trina's decision to be first-out in 2010 in terms of tapping the equity markets.

Ardour's Krop factored into the deal the likelihood that Chinese solar companies, even one with stronger balance sheets like Trina, would tap the equity markets this year. Trina shares closed Friday at $21.30, versus a closing price of $24.05 last Friday. There were 10 million Trina shares traded on Friday -- the full amount of the offering including overallotment was approximately 9 million.

Speaking to share dilution, Krop said, "Maybe they just decided to take their pain first."

-- Reported by Eric Rosenbaum in New York.


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