Solarfun prices ADS/CB offer despite share slump

A longish article from Finance Asia, with more detail on the transaction than is excerpted here: Nasdaq-listed Solarfun Power surprised some market watchers by completing a combined sale of convertible bonds and American depositary shares (ADS) after the US market closed on Wednesday, despite a continued decline in its share price.

On the day of pricing, the Chinese manufacturer of photovoltaic solar cells, modules and ingots fell 11.5% amid a sharp sell-off in the entire solar power sector, taking its total losses over the past 12 sessions to 55%. However, sources say the company needed the money to pay for an ongoing expansion project and for the acquisition of wafers and thus decided to go ahead.

…The structure of the deal, which comprised $117.6 million worth of ADSs and $150 million of convertible bonds, was unusual in that the ADSs were sold with the sole purpose of being used as a hedging tool for the CB. Without those additional shares, there wouldn’t have been enough shares in the market available for lending, which would have made the CBs a much harder sell and would likely have resulted in a less favourable pricing….

The additional shares were effectively lent by Solarfun to Morgan Stanley (the sole arranger of both the share sale and the CB) through a sale and repurchase agreement. The US investment bank then sold them on to investors through a normal bookbuilding exercise, creating a short position on its own books that was then transferred to the CB holders through a total-return swap agreement…

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