IPO of a Chinese Solar company in USA

A Chinese company plans to do a $300 million IPO in USA. The company known as Solar Power Inc. (what an inventive name) started operations in 2015 and its main business model is to build solar power plants using a crowd sourcing model. The business is based on the fact that Chinese solar investors receive very low amounts of interest. They would like to invest in higher yielding investments, which a solar power project could offer. Ticket size of the investments would be as low as $160. The company has been started as a JV between an online gambling and real estate companies. Note solar power construction in China is a very low margin competitive business. Earning high yields is very difficult in this business. Online finance has become a hot sector in China, with regulations lax in my view. Every Tom, Dick and Harry is raising money through online channels and putting it in dubious channels. Raising $300 million looks a tall order to me, given that some of the largest companies in China do not have such a market capitalization. For an upstart raising $300 million would mean a market cap of at least $600 million. I am not sure how they will get the valuation to reach $600 million. Note Hanergy which recently went kaput also dabbled in online finance. Solar energy has become a hot sector with massive growth being seen globally. It is attracting all sorts of characters most of which have zero experience or expertise in this sector.

Read more about the Chinese solar industry here.

I am almost 100% sure that this business will be a bad one to invest in, given the antecedents, business model and valuation that Solar Power Inc. is aiming at. Investors should be extremely wary of high returns in solar power, as the returns are extremely low and failure rates are very high. Despite growth, the fast changing nature of the business makes it extremely risky. There have been few winners in the global solar industry expect for some investors who made it bid due to European FITs, which used to give outsized IRRs for little risk. Now those days are gone with intense competition driving returns into single digits.