On April 1, GCL group’s Poly GCL and GCL new energy issued a joint announcement that they planned to sell six photovoltaic power plants to Three Gorges Asset Management Co., Ltd. Since the debt crisis broke out in 2018, GCL group has been relying on the sale of photovoltaic power plants to repay its debts. Industry insiders said that relying on the sale of assets, the asset liability ratio of GCL group declined, but the company’s performance also continued to decline. If GCL group is unable to maintain a good profit position, even if it sells more assets, it will be difficult for the company to really get out of the predicament.
“Top down” of debt
According to the joint announcement, two indirect subsidiaries of GCL new energy, Henan GCL new energy and Suzhou GCL new energy, have signed a share purchase agreement with Three Gorges Asset Management Co., Ltd. for photovoltaic power station, and plan to sell all shares of four companies, namely Kaifeng Huaxin, Sanmenxia Xieli, Queshan zhuiri and Shangshui Xiexin, and 50% shares of two companies, Nanzhao Xinli and Taiqian GCL.
According to the announcement, the transaction involves six photovoltaic power plants in operation, with a total grid connected capacity of about 321 MW. After the completion of the transaction, the liabilities of poly GCL and GCL new energy will decrease by about 1.294 billion yuan, and the exchange will use 927 million yuan to repay the debts.
Both poly GCL and GCL new energy are affiliated to GCL group. GCL group is a domestic new energy enterprise whose business layout covers the whole photovoltaic industry chain, clean energy power generation and cogeneration. In addition to poly GCL and GCL new energy, GCL group also has two listed companies, GCL integration and GCL energy technology.
In fact, this is not the first time that GCL new energy has sold photovoltaic power plants for debt repayment. In 2019, GCL new energy sold all the shares of 294mw photovoltaic power station to China Huaneng. In 2020, the total grid connected capacity of the photovoltaic power stations sold by GCL new energy will be close to 2gw, and the cash recovered will exceed 6 billion yuan. In 2021, GCL new energy also plans to sell photovoltaic power plants with a total grid connected capacity of more than 2gw.
In addition to the sale of six photovoltaic power stations, GCL new energy also disclosed in the announcement that the company plans to explore more cooperation opportunities with Three Gorges Asset Management Co., Ltd. and the two sides plan to reach and implement more agreements on the sale and joint development of photovoltaic power stations in the near future.
Behind the frequent sale of photovoltaic power plants by GCL group is the huge debt pressure. By the end of June 2020, the total assets of poly GCL energy are 95.262 billion yuan, the total liabilities are 70.202 billion yuan, the asset liability ratio is about 73.7%; the total assets of GCL new energy are 52.856 billion yuan, the total liabilities are 42.686 billion yuan, the asset liability ratio is about 80.8%.
As a photovoltaic enterprise with the largest volume in the industry, GCL group has been ranked in the top three of the global top 500 new energy companies and the first of the top 500 new energy companies in China for many years. Nowadays, GCL group has fallen into debt mire, which has something to do with its own development process and industry environment.
In 2006, Zhu Gongshan, founder of GCL group, took a fancy to the photovoltaic industry and decided to enter the upstream polysilicon raw material field. In June 2009, poly GCL bought Jiangsu Zhongneng, a polysilicon manufacturer, with a sky high price of 26 billion yuan, becoming a leading new energy stock, ranking third in the global polysilicon raw material industry. By 2011, GCL poly was promoted to the No.1 position in the industry.
After becoming the number one in the industry, GCL poly increased its pace of expansion. In April 2017, GCL poly announced that it would build a polysilicon project with an annual capacity of 60000 tons in Xinjiang, with an additional investment of 5.7 billion yuan. At that time, the top three enterprises with global polysilicon production capacity were poly GCL (70000 tons), Wacker (60000 tons) and OCI (50000 tons). Poly GCL’s new capacity of 60000 tons is equivalent to building another German Wacker.
In the capital market, GCL group is also used to large-scale mergers and acquisitions. In 2007, Zhu Gongshan led poly GCL to list on the Hong Kong stock exchange. In 2014, poly GCL successfully acquired Sentai, a Hong Kong listed company, and renamed the latter GCL new energy. In 2015, GCL Group acquired A-share listed company Chaori solar, and renamed the latter GCL integrated.
With the help of capacity expansion and equity M & A, GCL group eventually owns four listed companies, becoming one of the largest private power companies with mixed ownership in China, and Zhu Gongshan’s “new energy Empire” has also taken shape. However, there is a hidden crisis under the huge size of GCL group. Since 2016, the asset liability ratio of GCL new energy has been more than 80%.
In May 2018, the national development and Reform Commission, the Energy Bureau and the Ministry of Finance jointly issued a notice that the subsidy policy of photovoltaic electricity price returned to a reasonable range, and high subsidy became history. Subsequently, poly GCL and GCL new energy appeared the situation of tight capital chain one after another. By the end of 2018, GCL new energy’s cash plus financing amount was 12.8 billion yuan, while the debt due within one year was as high as 9.5 billion yuan.
Dong Xiang, a financial market expert, said that photovoltaic is a heavy asset industry. In order to seize the market share of photovoltaic, GCL group borrowed a lot to expand its production capacity. This mode can barely maintain under the high subsidy environment. However, with the reduction of subsidies, this model can easily lead to unsustainable cash flow and debt mire.
Hard to make blood
Now, GCL group has been selling photovoltaic power plants to repay debts for more than two years, but the debts are still high. In view of when GCL group is expected to completely solve the problem of high asset liability ratio, a reporter from Beijing business daily wrote to interview the relevant person in charge of GCL group, but as of press release, no reply has been received.
In fact, due to frequent sales, the number of photovoltaic power stations under GCL new energy has been significantly reduced. As of June 30, 2020, GCL new energy has a total of 180 photovoltaic power stations in China, a decrease of 22 compared with the same period in 2018; the total installed capacity is 5474 MW, a decrease of 21.36% compared with the same period in 2018.
“The sale of assets is a double-edged sword. Although it can reduce the debt, it may also weaken the overall operating capacity of the company.” In Dong Xiang’s view, if GCL group wants to solve the debt problem, it can not only rely on blindly selling assets, but also need to maintain stable growth of performance and maintain a good “hematopoietic” ability.
However, Beijing Business Daily reporter noted that the performance of poly GCL and GCL new energy is not optimistic. According to the performance forecast, poly GCL predicts that the company’s net loss in 2020 will be no less than 5.8 billion yuan, and the net profit in 2019 will be 110 million yuan; GCL new energy predicts that the company’s net loss in 2020 will be no less than 900 million yuan, and the net profit in 2019 will be about 605 million yuan. The net profit of the two companies will turn from profit to loss in 2020.
Wang Shujuan, an expert of energy special committee of China Investment Association, said that in 2018-2019, poly GCL tried to carry out a technological reform in order to promote transformation and improve performance, but failed to seize the time window in terms of promotion, resulting in the transformation effect is not very ideal.
In the case that the transformation of poly GCL is not ideal, GCL group is placing more hope of transformation on its other listed companies. In March this year, GCL energy technology announced the development plan of electric vehicle power exchange business. The business target areas include passenger cars represented by taxis and online car hailing, involving the integrated solution of power exchange station, power exchange station operation and energy services, and battery echelon utilization.
Beijing Business Daily reporter Qian Yu Pu Zhenyu
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