IPO Report: Sky Solar Holdings, Ltd. (SKYS)

Sky Solar Holdings, Ltd. (SKYS) is a global IPP. SKYS develops, owns and operates solar parks and generates revenue primarily by selling electricity. It is based in Hong Kong.

Ten other companies are scheduled for the week of Nov. 3, 2014. The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint-managers: FBR and Cowen and Company

Co-managers: Roth Capital Partners and Northland Capital Markets 

End of lockup (180 days): Wednesday, May 6, 2015

End of 25-day quiet period: Tuesday, December 2, 2014

SKYS scheduled a $138 million IPO on Nasdaq with a market capitalization of $604 million at a price range midpoint of $11 for Friday, Nov. 7, 2014 on Nasdaq.

Sky Solar Holdings IPO Report

Summary

SKYS is a global IPP. SKYS develops, owns and operates solar parks and generates revenue primarily by selling electricity.

SKYS has focused on the downstream solar market since its inception and has developed projects in Asia, South America, Europe, North America and Africa.

Valuation

Glossary

Conclusion

Avoid

Losing related party revenue

Sales down -35%

Japan not accepting new applications

Business

SKYS is a global IPP. SKYS develops, owns and operates solar parks and generates revenue primarily by selling electricity.

SKYS has focused on the downstream solar market since its inception and has developed projects in Asia, South America, Europe, North America and Africa. SKYS believes its broad geographic reach and established presence across key solar markets are significant differentiators that provide global opportunities and mitigate country-specific risks.

SKYS aims to establish operations in Japan, Chile, Uruguay and other select geographies with highly attractive solar radiation, regulatory environments, power pricing, land availability, financial access and overall power market trends.

By design, SKYS focuses on the downstream PV segment, and as a result, SKYS is technology agnostic and SKYS can customize its solar parks based on local environmental and regulatory requirements.

Prior to becoming an IPP, SKYS sold its solar parks.

SKYS initiated its global IPP model in 2012. In 2013, SKYS began to strategically reduce its system sale business in favor of the IPP model in order to internalize more value from project development and generate stable and recurring long-term cash flow.

By the fourth quarter of 2013, SKYS began to generate a majority of its revenue from selling electricity from IPP solar parks.

SKYS intends to leverage its established pipeline projects and increased financing capabilities to expand its IPP business. SKYS may also optimizes its portfolio from time to time by selling solar energy systems or establishing joint ventures, depending on project economics, local power markets and the regulatory conditions.

SKYS has access to a variety of financing sources and a demonstrated ability to design cost-effective project funding solutions.

SKYS is well positioned to create efficient financing solutions that are responsive to local regulatory conditions and financial markets. SKYS believes it can leverage its global presence to reduce its financing costs with alternatives from different geographies.

Risks

The reduction, modification or elimination of government subsidies and economic incentives may reduce the economic benefits of existing solar parks and our opportunities to develop or acquire suitable new solar parks.

For example, the European Union, the United States and other international economies have recently experienced a credit crisis and economic slowdown, resulting in decreases in the availability of financing for solar parks and decreases in investments in new installation of solar parks. Existing solar parks have also been delayed as a result of the credit crisis and other disruptions. If economic recovery is slow in the markets where SKYS has operations, SKYS may experience decreases in the demand for solar parks.

As of the end of September 2014, five out of the ten general electricity utilities in Japan have announced plans to temporarily suspend reviews of proposals from solar energy producers, such as SKYS, due to a foreseeable shortage in their available power transmission capacity in light of the popularity of the FIT program.

The five utilities in question are Kyushu Electric Power, Shikoku Electric Power and Okinawa Electric Power, which operate in the west of Japan, and Hokkaido Electric Power and Tohoku Electric Power, which operate in the northeast. The remaining five utilities may have suspended reviews of proposals from solar energy producers as well, in the absence of announcements.

Competition

SKYS believes that its primary competitors are local and international developers of solar parks, many of whom are integrated with upstream manufacturers.

5% shareholders pre-IPO

Weili Su  31.6%

Flash Bright Power Ltd 31.6%

Dividends

No dividends are planned

Use of proceeds

SKYS expects to receive $122 million for its IPO and use it for the following:

$40 million for the construction of its shovel-ready projects in Japan;

$40 million for the construction of its shovel-ready projects in Latin America such as Chile and Uruguay; and

$10 million to develop its project pipeline in other regions.

The balance to be used for general corporate purposes, including working capital needs, potential strategic investments and other business opportunities.