Daqo New Energy Expects To Raise RMB 6.45 Billion With IPO

• Daqo New Energy has priced the shares of its principal operating subsidiary Xinjiang Daqo New Energy at RMB 21.49 per share
• It will be placing 300,000,000 or 300 million shares on the STAR Market of SSE in China
• Of these, 90 million will be issued to cornerstone investors including ADIA; the subsidiary will be listed on STAR Market on July 22, 2021
• Roth Capital Partners expect the management to consider expanding production capacity outside of Xinjiang or possibly outside of China with gross proceeds

Daqo New Energy of China has finally announced the share pricing of its principal operating subsidiary Xinjiang Daqo New Energy that it plans to list on Shanghai Stock Exchanges' (SSE) Sci-Tech Innovation Board, also called STAR Market. The plan has been in the offing since June 2020 (see Daqo Eyeing Chinese Capital Markets For Listing).

The SSE has now fixed RMB 21.49 ($3.32) per share as the IPO pricing for Xinjiang Daqo's 300 million shares that it plans to issue, representing close to 15.58% of the total 1.925 billion shares outstanding after the IPO. It would lead to approximately RMB 6.45 billion ($1 billion) in gross proceeds for the company. Back in September 2020, the management had expected to raise $732 million through the IPO to expand its annual production capacity by 35,000 MT (see Daqo's IPO Plans On STAR Market Move Forward).

Of the planned share issuance, 90 million will be issued to 'cornerstone investors' including Abu Dhabi Investment Authority (ADIA), China Life Insurance, State Power Investment Corporation, China Huadian Corporation, among others. On completion of the IPO, Daqo New Energy will remain 80.7% stakeholder in the subsidiary.

On July 13, 2021, Daqo New Energy expects the share issuance and subscription to take place, while final IPO share placement and share allocations will be confirmed on July 16, 2021. The subsidiary will be officially listed on the STAR Market on July 22, 2021.

Roth Capital Partners pointed out that the RMB 6.45 billion expected proceeds are above the company's prior plans, but the implied multiple is meaningfully below Chinese peers.

Philip Shen of Roth said, that the company may want to use the proceeds to expand its current production capacity, but outside of Xinjiang, and 'potentially beyond China' by 35,000 MT or 70,000 MT, referring to the US government's June 23, 2021 dated withhold release order (WRO) against major raw silicon supplier from China Hoshine, headquartered in Xinjiang (see US Government Ban On Xinjiang Produced Solar Products).

Daqo is expanding its current 70,000 MT annual production capacity at Shihezi city in Xinjiang by another 35,000 MT which has been under construction since mid-March 2021 (see Daqo New Energy Pockets $256 Million Revenues In Q1/2021).

The US Commerce, Treasury, Homeland Security and state departments have also issued a warning to companies with suppliers or customers in Xinjiang, Roth added, about legal and reputational risks of dealing with entities alleged to be linked with human-rights violations there.

"DQ operates in the city of Shihezi, located in northern Xinjiang. This represents, in our view, a risk to DQ's business as it may discourage other companies from doing business with DQ even if DQ has no connection to the alleged activities as a result of geographical association," noted Shen.