Today I provide some reasons why Chinese solar companies are choosing to go public on United States exchanges as oposed to mainland China or Hong Kong.
1. Weak financial system in China: Chinese domestic exchanges are very volatile and the banking system is weak. Moreover, the domestic listing process can be time consuming and involve difficulties in obtaining government approval.
2. High liquidity and access to capital: The United States financial markets are the largest and most liquid in the world. In addition, there are alternative options for raising capital, including PIPES.
3. Export driven: Only a small amount of sales in the domestic market. Most exports go to Western Europe, particularly Germany. Furthermore, there is huge potential for growth in the United States, especially California.
4. Young, western educated management: Many executives and founders are educated in Australia and are fluent in English. There are seeking to market their brands in the West.
5. Follow-the-leader: After the success of Suntech Power’s offering, the other Chinese solar companies were eager to follow the Suntech’s model in hopes of repeating the achievement.
6. Signaling to investors and customers: Listing in the United States provides credibility and cachet. By satisfying the rigorous requirements of Sarbanes-Oxley and SEC disclosure/accounting standards, these companies can display to customers and investors that their corporate governance system and finances are legitimate. This has opened the door to contracts with foreign customers and suppliers providing silicon, the raw material for PV production and a scarce resource. Thus, the benefits to reputation and signalling outweight the added costs of complying with U.S. regulatory laws. For these companies, Sarbanes-Oxley was not a deterrent, and perhaps even an advantage to listing in the United States.
7. Investors expect an exit in the United States: Principle investors, which have included Goldman Sachs, Merill Lynch, Good Energies Investments, Citigroup Venture Capital International, anticipate a public offering in the United States.
8. Analysts: Key industry analysts are in the United States providing research coverage and favorable valuations. With a growing group of solar offerings, both analysts and investors are knowledgeable in the industry and can easily compare companies.
All of these reasons play a factor in the decision of these companies, some more than others depending on the individual corporation. The overall take-away from the wave of Chinese Solar IPO’s in the United States is at least with Chinese technology companies, the United States is still the favored location to IPO. This is good news as many have recently feared that United States exchanges are losing their ability to attract foreign corporations.
Click to view Part I of my posting on the wave of Chinese Solar IPOs in the U.S.