GCL Poly plans to sell Non solar business

The world’s largest producer of solar wafers GCL Poly is in plans to sell its non-solar businesses such as WTE and cogeneration plants to its parent company for around $500 million. GCL Poly is groaning under a large debt burden, despite being profitable. The company has earlier tried to sell off its wafer business to its parent company, but that had resulted in a major shareholder revolt as it was a highly profitable business and it did not make sense to sell the crown jewels.

The solar industry has remained mostly a low profit business, despite the massive boom in global solar demand in the last 2-3 years. Though some companies like Jinko Solar, Trina Solar etc. have shown consistent profits, most others are still making large losses. These companies have been facing cash flow issues and some of them have just gone under unable to bear the interest burden. LDK and Suntech have gone bankrupt, while Yingli Green Energy seems to be following that path. The problem with the industry is that the capacity still is quite huge and even bankrupt companies capacity continues to function under new state owned companies. These capacities create pressure on profit margins and sales for the existing players.

GCL Poly has managed to keep its GM quite high above the 20% level, despite a sharp cut in poly and wafer ASP prices by more than 10% over the last one year. The company has increased production quite rapidly and now accounts for almost 30% of the global solar wafer production. Its polysilicon capacity is also quite huge at 70000 tons, making it one of the top 3 poly producers in the world.

The fundamentals of GCL Poly are quite good, however it faces issues of corporate governance like most emerging market stocks. Investors are never quite sure what the management will do.