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Tongwei Group to Buy LDK Hefei: A Sign of Future M&A Activity in China?

On 11 September 2013, Tongwei Group was announced as the winner of a tender for 100% stake in the former subsidiary of LDK Solar based in Hefei, China. If the transaction goes through, it will be one of the largest acquisitions in the history of solar PV manufacturing.

The acquisition is significant because LDK Solar Hi-Tech (Hefei) Co., Ltd., or LDK Hefei, owns about 1.4 GW of crystalline silicon cell capacity and 300 MW of module capacity. Consequently, the buyer will instantly become one of the top 15 PV cell manufacturers in the world. Q-Cells acquisition by Hanwha Group is the only comparable case in the PV industry.

The transaction value does not seem to be as significant at first glance: Tongwei Group committed to pay RMB 870 million for the tender, with no further details disclosed. But according to the tender announcement, LDK Hefei also had about RMB 2,831 million of liabilities.

Back in April 2013, LDK Hefei was disposed of by LDK Solar to Hefei High Tech Industrial Development Social Service Corporation, an affiliate of the Hefei City government, for approximately RMB 120 million in cash (and assumption of outstanding debt). In fact, LDK Hefei was once announced to be sold to Shanghai Qianjiang Group in January 2013 for just RMB 25 million plus all obligations, but the deal was rejected by the Hefei City government.

So it would appear that the valuation of LDK Hefei has increased significantly over the past eight months. This makes sense because the global PV industry has notably recovered during 1H’13, and tier 1 players have been demonstrating improved earnings. Therefore, the new LDK Hefei case may represent of good example of PV manufacturing capacity merger and acquisition (M&A), following the painful shakeouts during the past few years.

So, who is Tongwei Group? And what are they up to?

Although their main business is in agriculture, Tongwei Group already invested in PV through their polysilicon subsidiary Sichuan Yongxiang, as well as their ingot-to-module branch Tongwei Solar in Chengdu. While their aggressive expansion plan into PV manufacturing had been halted during the industry downturn, it would now appear to be back on track through the new pending acquisition of LDK Hef