ReneSola: Secondary Offering Pressures Shares

ReneSola Ltd. (SOL) is not for the faint of heart. Since its $13.00 IPO in March the stock has seen a low of $7.36 and a high of $29.48. That accounts for a 300% gain if one was lucky enough to buy at the very bottom and sell at the very top. Since its high in May, the stock has taken back nearly half of its gains and a great bit of the decline occurred on yesterday’s trading. Many traders were likely hard pressed to find a reason for the significant decline on volume, but the primary reason actually stems from an announcement made May 30th of this year.

At the end of last month, the company along with several key shareholders, filed to sell about 8.15 million ADSs to the public. The majority of that stock was being sold by the company which at the time stated its intent to use the $70 million expected from the sale to purchase additional equipment and fund production as it expands manufacturing capacity. The interesting question readers may be asking is “so why didn’t the stock drop on May 30th?”

The answer is that at the time of the filing, the market was still trading relatively firmly and since there was no immediacy to the offering, investors were more willing to look at the growth prospects of the company than the dilution they would endure through the company selling additional shares. As the market weakened, the stock began to decline as was to be expected, but Thursday the stock fell sharply in volume with the overall market as well as the majority of the company’s solar peers actually posting a small gain.

To give you a picture of what a fund manager’s day can look like, Thursday afternoon I was at my desk scouring the news wires to try to figure out why SOL was quickly dropping when my phone rang. The call happened to be from a particular contact of mine from Oppenheimer which is one of the companies that has been hired to underwrite the deal (or sell shares to the public).

So now it becomes perfectly clear! The stock is under pressure because it appears management is going to go through with the offering even though the price is much lower. This causes the dilution effect to be even greater, and many managers may sell or short the stock in advance of expecting to receive an allocation when the secondary is actually priced. This is where having an ear to the professional share flow comes in handy because many retail investors may still be unaware that the deal is soon to price.

ReneSola is still one of my favorite solar names and despite the additional shares coming to market I believe the stock is a good value at this price. However, you will not find me buying the stock until one of two things happen. Either the stock must begin to turn up and show strength in front of the dilution, or the deal must price and the stock must hold above the deal price. If either of these scenarios occurs, the fundamental backdrop will make me interested in purchasing. But until that point in time, the bears have the ball and its best to sit back and play defense.

Disclosure: Author does not have a position in SOL

Comments

[ace22]

whats the price there selling the shares for?

[ZacharyScheidt]

The short answer is that we won't know until the deal actually transpires...

Typically a secondary offering price depends on how much demand the underwriters can drum up. About half of the time, a secondary will price at the previous day’s closing price. But if it is becoming harder to find enough firms to take the stock, the price will then be set at a discount to the close (sometimes a significant discount). All buyers get the same price and it is really up to the underwriters to set the final offer price.

Thanks for the question - maybe at some point I should do a post about the mechanics of an IPO offering or a secondary offering.

ZDS

[gebby]

this type of action is so typical. always the same playbook. of course the underwriters starting shorting the stock with extreme confidence when it was 23.(it became a hard to borrow stock then). why doesnt wall street decide to look beyond the short term. the dilution is not that great and earnings growth is spectacular. the correction from the highs is already significant. buy the shares and go on vacation.

[Van Gastel]

As usual American investors seem to be oblivious to what is happening over here. In London, Renesola is down 14% and on the NYSE it opened up a couple of percent. If there ever was a hedging opportunity. Hello, sell while you can. NOW..

[tech man]

thanks zach, i bought sola at 25 with positive reporting on the stock and since then it has turned down hill. been buying on the down turn and wondering when the turn around would be. no news was always the case. thanks for the update.

[jtb9265]

zach, thanks for the article. so when do you feel the secondary offer will be priced? is there a typical timeframe for something like this (i.e. days/weeks/months)?

thanks again in advance.

jeff

[TheStockaccumulator]

The above nice article is now old news today June 13, 2008. SOL (Renesola) is the immediate amazing opportunity/play today, June 13, 2008. Research SOL, and you will see it was going through a temporary no reason pullback by US traders, while under accumulation that will be picking up by asian institutions/traders (and perhaps europeans, see each evening on the London exchange, it picks up significantly while the US drops the stock the next day). The recent ADS's issued is a normal thing when needing immediate capital to purchase equipment needed to build up supply. The demand for SOL products is now huge, and profit growth has been exponential the last 3 quarters. PE is only 18, and IBD (Investor's business daily) lists SOL as the 4th best company in the world to invest in. A temporary short duration pullback, while current analysts still suggest a $40 share price perhaps by late summer, or fall. Asians know SOL as a well known product, and solar panels are appearing all over asian towns and cities on street light posts, etc. Not so with americans and impatient US investors are simply changing hands with SOL shares, and Hong Kong, Tiwanese and other asian investors (and likely europeans are gradually picking up well known headline making SOL shares. Soon the stock will return and go beyond its $29 high, but the shares then be mostly owned throughout asia. The continued asian accumulation will pick up shortly... excellent opportunity. Compare SOL with other solar plays. Most have no PE (ie., no real profit, or the PE is very high, ie., 50 to 205). SOL is an unusal immediate opportunity.

[MSA]

Hi Zach: I found your blog (this is not an article) to be more about trying to create fear than being informative. Which tells me that you are not truthful, and very likely attempting to sway opinion to the negative so as to profit from a position. To wit, you use phrasing such as:

"the company along with several key shareholders, filed to sell about 8.15 million ADSs to the public"; and

"The stock is under pressure because it appears management is going to go through with the offering even though the price is much lower"; and

"I was at my desk scouring the news wires to try to figure out why SOL was quickly dropping when my phone rang. The call happened to be from a particular contact of mine from Oppenheimer which is one of the companies that has been hired to underwrite the deal".

Each of the above comments is designed to instill questions, not answer them, which is a prime tactic used to create concern and fear in the reader. Also, I challenge you to post the name of your contact at Oppenheimer who purportedly "called" you out of the blue just as you were mucking around for dirt on SOL. I hope you realize you are playing on the fringes of the SEC Insider Trading rules with this comment you posted.

Please refrain from thinking you can manipulate the "retail traders" with this sort of blogging. You, of course, are free to blog as you wish, but to do it in the guise of altruism is just not what your true motivation is. Plain and simple, you are just trying to make a buck, and you will do anything to skew the odds in your personal favor.

Have a good weekend.

[jtb9265]

msa, while all your skepticism is understandable, he does also say the stock is 'a good value at this price'. i know he follows with more questions, but i didn't get a strong sense of either buy/sell from these words. it seemed like pretty reasonable take to me. that said, i do agree the stock is being manipulated by others.

[MSA]

Skepticism is no doubt my view of this gentleman's blog. However, I would suggest that you take a look at Zach's website; you will see, first of all, a very shoddy website, and most importantly, his "articles" are, at least to me, obvious attempts to bolster his short positions by subterfuge and use of "good cop", "bad cop" phrasing. Further, it appears that Zach is a "one man shop" -his use of the title of Managing General Partner, and his assumed hedge fund, are rather funny and sad, at the same time.

If I am too skeptical for you, and others that read this, then please ignore what I have to say. But if you are familiar with the motivations of greed and what people will do under such motivation, then you will likely find truth in my words.

Good luck, and have a great weekend.

[twampus]

msa - good call on that website, i had not even thought to look at it. it is comical, from the zachzone podcast to the visually irritating choices of white font on black background. no lack of vanity with someone who has so many pictures of themself in one location. they're all from the same photoshoot too, same tie in each pic. SOL is a good buy, zach's listeners are a different kind of S-O-L

[jtb9265]

msa, no you're not too skeptical for me, i was just continuing discussion. and as i said, i don't think you're incorrect, it's just that reading that blog wouldn't make me either rush out to buy OR sell SOL. you probably know more about how all this manipulation stuff works though. while i'm not naive at all (very skeptical myself actually), i'm one who bought SOL simply because my research showed it was a good company with heavy positive upside. it's sad if people really would go so far as to manipulate others out of their $$$ for personal gain. have a good weekend too.

[TheStockaccumulator]

Very nice article. But SOL (Renesola) is the immediate play monday, June 16, 2008 for the better yet similar solar situation explained in the above excellent article. Research SOL, and you will see it is now done with its temporary no reason pullback by US traders, while under accumulation that is picking up by asian institutions/traders (and perhaps europeans, see each evening on the London exchange, it picks up significantly while the US drops the stock the next day). The now old news of SOL ADS's issued is a normal thing when needing immediate capital to purchase equipment needed to build up supply. The demand for SOL products is now huge, and SOL's profit growth has been exponential the last 3 quarters. PE is only 18, and IBD (Investor's business daily) lists SOL as the 4th best company in the world to invest in. SOL's temporary short duration pullback is now over, and current analysts still suggest at least a $40 share price perhaps by late summer, or fall. Asians know SOL as a well known product, and solar panels are appearing all over asian towns and cities on street light posts, etc. Not so with americans and impatient US investors who were previously changing hands with SOL shares, while large Hong Kong, Tiwanese and other asian investors (and likely europeans) were then and now quickly picking up well known headline making SOL shares. Soon the stock will return and go beyond its $29 high, but the shares then be mostly owned throughout asia. The continued asian accumulation will pick up more... excellent opportunity. Compare SOL with other solar plays. Most other solars have no PE (ie., no real profit, or the PE is very high, ie., 50 to 205). SOL with exponential growing profit and only a PE of 18 today, is an unusal immediate opportunity. Study it, and read todays news on SOL.

[jtb9265]

stockaccumulator, where do you find IBD saying SOL is the 4th best company in the world to invest in? I'd like to see that, as I can't find it anywhere. Thanks!

[tessant]

nice article. just named my new son Zach.....now there are two zachs that like SOL...

scott
solarfeeds

[ZacharyScheidt]

Hey guys... First, msa I'm sorry if the blog offends you or is irritating. but as far as instilling fear, that hardly matches the content of the article. I actually like the stock, will participate buying the stock on the secondary offering, and have owned it in the past. The article simply points out one of the reasons why the stock is declining.

As far as the truthfullness of my Oppenheimer contact, please know that my fund focuses on new issues and secondary offerings. As such I have built a network of contacts with most of the major underwriters in order to be informed and participate in offerings such as the SOL deal. It's not uncommon for me to receive a dozen phone calls like this when deals are coming to market.

As far as the picture goes I'm guilty as charged. I only had one "photo-shoot"... where my wife took some pictures so I could put one up on the blog. Sorry if its not so visually appealing (I totally agree with you on this :-)

As far as SEC regulations go, I will always be honest with readers as to my positions at the time of writing. I have no position in SOL but I do expect to participate in the secondary offering. I'm not sure how that could be construed as manipulative. I hope anyone who read the article, also did their own homework before making a decision to buy or sell.

Thanks for the lively discussion. That's what makes Seeking Alpha an insightful community.

Zach
zachstocks.com

[ZacharyScheidt]

Oh, and Jeff, The deal is scheduled for the 18th. The underwriters are Credit Suisse, Deutsche Bank Securities, Piper Jaffray, Lazard Cap Mkts., and Oppenheimer

[jtb9265]

since i do believe piper jaffray targets SOL at $40, it should be interesting to see what adjustment they make, if any, after the secondary issue, no?

[TheStockaccumulator]

This nice article by Zack is now very very old news... I think Zack will now be a buyer of SOL... see my last post above... indications are clear that asians and their funds, institutions, etc., and even the public are well aware of the SOL success story... the stock is just changing hands from americans, to asians, asian located funds, in Hong Kong, Japan, Bangkok, and also also many europeans... each nite last week it was up quite a lot in asia, and on the London exchange, only to be dropped during american trading... but even the american dropping is no not affecting the stock price any more, the meaningless USA selling is now over and finished... many articles are always in asian and chinese business magazines about SOL, that are never picked up to be published in US GOOGLE news... I am amazed at the important news of Chinese companies that never comes up when searching google news... many americans rely on google, and as such, americans figure there is no news... I have been very happy with Seeking Alpha... I read it every day, as well as IBD (Investors Business Daily)... and other asian news services... with SOL, their is clear evidence that SOL is sort of becoming a household investment name in China, and the chinese and other asian populations are well aware of the fact that SOL's solar subcomponents are being included in solar panels and solar equipment, for example on street lights throughout asia... SOL's products are making SOL exponential profit from this source today, not necessarily from people installing solar in homes... that is next year's profit source perhaps... today though , it is simply from millions of street lights in asia and europe. Also, SOL's subproducts are very inexpensive compared to its competitors. Note also that SOL has a PE varying in some finance news services, from only 8 to 18... amazing... the competition has PE's from 50 to 1000... terrible, too risky... and most show no profit at all... while SOL shows an amazing exponential profit, due to its amazing recycling technology. Hence why IBD still has it listed as the 4th best company in the world to invest in... You have to read carefully about SOL... as for the new ADS's, similar situation with any new exponentially growing company... years ago Michael Dell had to early issue much more stock, raise money, etc... he even sold his own stock to raise more cash, because he was limited in what DELL Co. could newly issue... DELL then fell in price 59%, people sold, called him an stock manipulator, thief, etc... then DELL stock steadily went up in value 10,000% over the next several years. Insider selling has many reasons, and the Chinese gov. securities officials have strict limits on stock issue, while demand for inexpensive SOL products is huge... so they had no choice but to raise money to grow and find a way to quickly build up supply, and keep the price of the product cheap... (some strange post I saw said SOL products were expensive, nonsense, the opposite is very true, so products are very cheap and effective...) so I suggest you read Chinese financial papers, look for another way to read about SOL other than from GOOGLE, or whatever nonsense internet only media... and do not sell SOL at $18 or $19 or other silly sellling price; in a few months you will be deciding whether to sell SOL at $48, another tough decision to make, next fall... so have courage and patience... Your friend, the Stockaccumulator ...

[Horsewhisper]

I bought this stock on a tip from multiple readings and homework, reading options chains and so forth as "THE ONE" to be my first short hold stock, being a newcomer to stock trading. Bought on 5/19 at 26.69 and watched it jump the next few days to over 30.00. My wife, not used to this game, couldn't let it go and only saw "Microsoft", insisted on a buy and hold, despite a floundering Asian economy.

I find it interesting that I've watched a far more modest investmet in MON do so much more during these past few weeks!! I hope you all are correct. As I say, I'm new to this, as you say, it's not for the faint of heart. I will sit. Wait. You know...I do want to retire in the Smokey Mountains some day :) Bless you all.

[TheStockaccumulator]

On the new issues there should be no confusion/rumors. If today, the price would be $20. These new issues are always at the market price the day of sale, on whatever market, London, NY, Hong Kong, whatever. Some few special folks get a better deal via the broker or company. But not too good a deal, or Chinese securities officials will investigate... and in China, people go to jail for a long time. And a good thing they are issuing these ADS's, as the company needs to raise money to create product to meet the incredible demand, keep customers happy with contract/delivery agreements. And they have some huge new contracts. Either way, even with the new issues, analysts firmly believe SOL needs to go into a range of 39 to 51 (and finally stay there) to be there with the other solars. SOL has a PE varying from 8 to 21... very low by any standards, and for a company with exponential profit growth. Piper Jaffray (still raving about their travel to China to investigate this amazing SOL) and IBD (ranking it the 4th best company in the world to invest in) would not be putting their name in SOL if it was not an amazing success story. NO WAY... SOL is approaching another one of its supersuprise earnings period/announcement, just like the last 3 quarters... the added ADS issue nonsense is very old news, and meaningless news... it will be priced at market price the day of true issue... there is no problem...see my earlier posts ... indications are clear that asians and their funds, institutions, etc., and even the public are well aware of the SOL success story... the stock is just changing hands from americans, to asians, asian located funds, in Hong Kong, Japan, Bangkok, and also also many europeans... each nite last week it was up quite a lot in asia, and on the London exchange, only to be dropped during american trading... but even the american dropping is not affecting the stock price now, the meaningless USA selling is now over and finished... many articles are always in asian and chinese business magazines about SOL that are not picked up to be published in US GOOGLE news... SOL's products are making SOL exponential profit from this source today, not necessarily from people installing solar in homes... that is next year's profit source perhaps... today though it is simply from millions of street lights in asia and europe. SOL's subproducts are very inexpensive compared to its competitors. SOL has a PE varying in some finance news services, from only 8 to 18... amazing... the competition has PE's from 50 to 1000... terrible, too risky... and most show no profit at all... while SOL shows an amazing exponential profit proven on the books, probably due to its amazing recycling technology. Hence why IBD has it listed as the 4th best company in the world to invest in... as for now old news of the ADS's, similar situation with any new exponentially growing company... years ago Michael Dell had to early issue much more stock, raise money, etc... he even sold his own stock to raise more cash, because he was limited in what DELL Co. could newly issue... DELL then fell in price 59%, people sold, called him a stock manipulator, thief, etc... then DELL stock steadily went up in value 10,000% over the next several years. Insider selling has many reasons, and Chinese gov. securities officials have strict limits on stock issue, while demand for inexpensive SOL products is huge... so SOL had no choice but to raise money to grow and find a way to quickly build up supply, and keep the price of their products cheap... (some strange post I saw said SOL products were expensive, nonsense, the opposite is very true, SOL products are very cheap and effective... do not sell SOL at $20 or $21 or other silly selling price; in a few months you will be deciding whether to sell SOL at $48, another tough decision to make, in just the next month or two... so have courage and patience... Your friend, the Stockaccumulator ...

[TheStockaccumulator]

Zack, as you can see the Stockaccumulator has been dead on with SOL... (see my posts going back to last week, and my friday/monday morning posts)

... want some others sure ones to write about? Try NE (see info on contracts with PBR to supply deep water platforms) NXY (too much good to say) SID (a world of steel creation like no other) and can't forget amazing PBR... thats it for now. I have other lists, but the others, just not so sure of the others... but the above list are sure bets. Research them more carefully, don't be afraid of the nonsense rumours, you will be amazed at these choices, though I am sure you know something about them already. I have carefully researched all, and all will shoot up on the next quarter's announcements at latest oil (or steel in the case of SID) prices for april, May and June... I expect PBR to rise up to the analyst expected $90 per share by end of the next fantastic earnings announcement, just as the last 7 quarters.... it never will end for PBR... always a pullback by say 15% for a couple weeks them up say 40% from there... PBR is one to read and write about for sure.

Your friend, the Stockaccumulator...