Shanghai Electric and Poly GCL ceased equity M&A transactions. Some experts believe that it is related to the impact of PV “531 New Deal”

On the evening of August 3, A+H listed company Shanghai Electric and Hong Kong stock company Poly GCL successively announced the progress of the equity M&A transaction. According to the announcement, Shanghai Electric and Poly GCL Energy agreed to terminate the previously planned “Shanghai Electric's purchase of shares and payment of cash to purchase 51% equity of Jiangsu Zhongneng, a subsidiary of GCL-Poly Energy”.

Regarding the reason for terminating the transaction, the announcement stated that “in view of the large scale of the target company (Jiangsu Zhongneng), the asset boundary of the underlying company involved in the transaction has not yet been finalized, and the transaction plan of this transaction is more complicated. There is no complete agreement on the relevant cooperation terms and trading plans. Therefore, the parties believe that the timing and conditions for the current major asset restructuring are not mature enough."

According to the "Securities Daily" reporter, although the transaction has been terminated, Shanghai Electric and Poly GCL Energy will continue to maintain close cooperation in the photovoltaic industry, especially the investment and development of photovoltaic power plants and EPC business in the new energy field.

"531 New Deal"

What is the impact on this transaction?

Regarding the termination of the transaction, the industry believes that it is related to the impact of the photovoltaic “531 New Deal”.

Since the release of the “531 New Deal”, the volatility of the A-share PV sector has meant that the market is concerned about the “short-term impact of policy changes on the industry”.

The "531 New Deal" aims to curb the demand for downstream PV applications by accelerating subsidies and scale reductions, etc., and force PV manufacturing to reduce costs and increase efficiency as soon as possible, and achieve parity online at an early date.

And this means, before pushing PV manufacturing through technology upgrades to achieve cost reduction and efficiency, the first squeeze is its profit margin. Therefore, according to relevant statistics, in the two months after the release of “531 New Deal”, the average price of photovoltaic industry products including silicon materials, silicon wafers, battery chips, modules, etc., reached an average of about 20%.

However, the "Securities Daily" reporter learned that in the last week of July, the domestic polysilicon offer has shown its first stabilizing rise since June, in which the polysilicon premium grade material price range is 86,000 yuan / ton - 98,000 yuan / ton, the average price It was 93,300 yuan / ton, up 0.21% on a week-on-week basis.

In the first week of August, the domestic polysilicon premium grade material price range rebounded to 90,000 yuan / ton - 98,000 yuan / ton, the average price of 94,100 yuan / ton, up 0.86% on a week-on-week basis. At the same time, the production and sales of polycrystalline silicon wafers also rebounded in July, and the price also rose from 2.4 yuan/piece to 2.3 yuan/piece at the end of June to 2.4 yuan/piece to 2.5 yuan/piece.

The industry believes that the reason for the stabilization of polysilicon prices is that the operating rate of downstream polysilicon wafers has improved since last week, and the demand for polysilicon orders has gradually picked up.

On the other hand, according to the analysis of the China Nonferrous Metals Silicon Industry Branch, 12 polysilicon companies chose to overhaul or stop production in June, involving an overhaul capacity of 82,500 tons/year, accounting for 27.7% of the total domestic production capacity. Up to now, the domestic production capacity for shutdown production has reached 118,000 tons, accounting for 40.1% of the total production capacity.

That is to say, under the effect of the price mechanism, high-cost production capacity or backward production capacity is accelerating, and this makes the overall supply of polysilicon market decrease, and the concentration of production capacity is rising.

All of this, the most beneficial is precisely the world's largest supplier of photovoltaic polysilicon - Jiangsu Zhongneng.

Not only in the silicon material end, industry analysis, photovoltaic industry chain has excess capacity, but this excess is structural excess, not absolute surplus, which is the result of full market competition in the photovoltaic industry, that is, low-end, high-cost production capacity There will be excess, and high-end, low-cost capacity will not be excessive.

On this basis, the domestic PV market demand declined after the “531 New Deal”, but the international market demand rose during the same period. The industry judged that the overall decline in 2018 was limited. At the same time, many organizations such as Bloomberg New Energy expect that after 2020, the global installed capacity of photovoltaics may show an explosive situation. Therefore, in the long run, the adjustment of this round of PV industry will be extremely beneficial to the consolidation and increase of market share of leading PV companies such as GCL-Poly.

Where is Jiangsu Zhongneng?

Obviously, the PV industry's reaction to the "531 New Deal" has been overreacted, especially for the leading companies, which has survived this short-term adjustment. It is much simpler than when 2012 faced the trade barriers between Europe and the United States.

Just as in this transaction, Shanghai Electric has shown an eagerness to transform solar energy. It said in the announcement that “currently, the national energy strategy with the decline of traditional energy consumption and the acceleration of low-carbon energy development is very clear, Shanghai Electric Works The energy industry is facing transformational pressure. Under the background of profound transformation of the energy industry, the company's transformation of solar energy is in line with the national industrial policy, and it is a good choice for Shanghai Electric to seek new and old kinetic energy conversion and realize development.

And GCL-Poly does not seem to show a firm determination to sell Jiangsu Zhongneng. As a result, "the two sides have so far failed to reach a complete agreement on the assets boundary, relevant cooperation terms and trading plans of Jiangsu Zhongneng involving the transaction."

According to Shanghai Electric's previous announcement, the valuation of the 100% equity of Jiangsu Zhongneng, the target of this transaction, is not expected to exceed RMB 25 billion.

For this valuation, Zhu Xinshan, Chairman of the Board of Directors of GCL Group, introduced in the investor conference call held on June 6 that “the Jiangsu Zhongneng Valuation is 25 billion yuan, based on Jiangsu’s net assets of RMB 18 billion. And the corresponding property, technology, brand calculations, including the previously acquired SunEdison fifth generation CCZ pull crystal technology, silane fluidized bed granular silicon technology and its subsidiaries SunEdison ProductsSingapore, MEMC Pasadena and Solaicx part of the technology and assets."

According to public information, Jiangsu Zhongneng is a core subsidiary of GCL-Poly Energy, controlling the world's largest share of polysilicon and photovoltaic wafers. In 2017, Jiangsu Zhongneng produced 75,000 tons of polysilicon and 24 GW of silicon wafers, accounting for more than a quarter of the global market.

In other words, if this transaction is successful, Shanghai Electric will enjoy the world's largest polysilicon material and photovoltaic wafer production capacity. As a result, Shanghai Electric has said in an interview with the media that "this cooperation with GCL-Poly is an important opportunity for the company to achieve a major transformation of its energy business."

In addition to capacity, according to the "Securities Daily" reporter, Jiangsu Zhongneng has now achieved the "double base" support in Xinjiang and Xuzhou, and improved the parallel development of Siemens and silane fluidized bed technology and the "single polycrystalline simultaneous development" pattern.

Among them, the Xinjiang project is expected to be put into trial production before the end of this month; and based on the talents and technological advantages of the company for many years, combined with the low electricity price in Xinjiang and the purchase of new domestic equipment, the overall cost level of the Xinjiang project is expected to be 10% lower than the competitors. In addition, it is also implementing the transformation of the high electricity price capacity of the Xuzhou base to achieve full coverage of its Xuzhou polysilicon production capacity with low electricity prices.

In terms of cost reduction and efficiency increase, the ingot casting process of GCL-Poly Energy continues to be upgraded, and the production cost of polycrystalline silicon wafers has the potential to further reduce. In addition, in the polycrystalline black silicon superimposed PERC technology, Yangzhou GCL black silicon base has built 26 high-efficiency solar cell wafer single-sided wet black silicon cashmere digital production lines, the production capacity will reach 6 GW-7 GW.

In terms of single crystal, it is reported that the single crystal silicon wafer produced by GCL-Poly Energy's latest ingot casting method combines the advantages of polycrystalline ingot silicon wafer technology with high productivity, low light decay and low package loss. Cz single crystal products have high conversion efficiency and low dislocation density, and can take advantage of the alkali-based velvet process. After superimposing the PERC technology, the efficiency difference between the ingot single crystal and the Cz single crystal is only 0.18%, and the cost is greatly reduced.

In addition, in October last year, A-share listed companies, single-crystal leading Zhonghuan shares and GCL-Poly have also established close cooperative relations: Inner Mongolia Zhonghuan Photovoltaic Materials Co., Ltd., a subsidiary of Zhonghuan Co., Ltd., and Jiangsu GCL Technology Development Co., Ltd., a subsidiary of GCL-Poly Inner Mongolian Central GCL Solar Materials Co., Ltd. was established.

Today, the two sides have not only established cooperation in the Inner Mongolia project of Zhonghuan, but also established cooperation on the GCL-Xinjiang project. This move not only provided strong support for GCL-Poly's “single polycrystalline combination”, but also laid the foundation for the upstream and downstream cooperation between the two parties in the semiconductor field.

As early as December 2015, the National Integrated Circuit Industry Investment Fund, in conjunction with GCL-Poly, invested 2 billion yuan in Xuzhou to establish Jiangsu Xinhua Semiconductor to build China's first 5,000-ton semiconductor integrated circuit dedicated electronic grade polysilicon production line. In November 2017, Xinhua Semiconductor officially released electronic grade polysilicon products to fill a gap in the national integrated circuit industry. In 2018, Xinhua Semiconductor's electronic grade polysilicon products have been mass-produced in the domestic market, and gradually provide small-volume products for overseas sales. This electronic grade polysilicon product is the upstream raw material for the related products of Zhonghuan.

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