Solar company spinoffs lure investors with dividends

Reuters

* SunEdison to list first pure-play solar "yield co" in U.S.

* NRG Yield, which holds some solar assets, up 42 pct since debut

* JinkoSolar, Canadian Solar looking at power plant spinoffs

By Swetha Gopinath and Sayantani Ghosh

Jan 16 (Reuters) - Long shunned by cautious investors, solar companies have hit on a new way to deliver returns to shareholders that could attract new money to an industry notorious for its stock price volatility.

SunEdison Inc is the first of a wave of companies preparing to bundle up existing solar power plants and then spin them off into separate entities, known as "yield cos", to raise money to build new plants.

The promise of regular dividend payouts, hitherto unknown in the solar industry, offers an entry point to the sector for retail investors and is expected to generate huge demand when these companies go public, analysts and investors said.

"Yield cos appeal more to people who are looking for a safe way to invest in solar, protected from the volatile stock prices of manufacturing companies," said Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management.

Bruised by a two-year slump in the price of panels, solar companies are exploring new and cheaper ways to finance growth and meet rising demand for solar power.

Asset-backed notes to securitize future income, such as those launched by SolarCity Corp last year, are one way to cut the cost of capital.

Yield cos work in a different way. These companies will own and operate solar assets under long-term power-purchase agreements with utilities - a guarantee of stable cash flow.

Most of this cash will be paid out as dividends, with the remainder re-invested in new plants, a valuable source of funding for parent companies that will retain a sizeable stake in the new entities.

SunEdison expects to raise up to $300 million by spinning off its unit, SunEdison Yield Co. The U.S. listing, planned by the second quarter, will create the first pure-play solar yield co in the United States.

SunEdison plans to float 20 to 30 percent of the unit which, based on cash flow, could be valued at between $800 million and $1 billion, Brian Wuebbels, SunEdison's chief financial officer, told Reuters.

By retaining a stake of up to 80 percent in the yield co, the parent company would retain the lion's share of the quarterly dividends.

"It should help the parent companies strengthen their balance sheet," said Guinness, who holds shares in several solar companies, including Trina Solar Ltd, Yingli Green Energy Holding Co Ltd and SunPower Corp.

CHINA RISK

Analysts say First Solar Inc, SunPower, and Warren Buffett's MidAmerican Energy Holdings are among the U.S. solar companies that could potentially launch yield cos.

The three companies declined to comment when asked about plans for forming yield cos but others, such as Canadian Solar Inc and JinkoSolar Holding Co Ltd, say they are thinking about it.

The only U.S.-listed yield co that currently holds solar assets is power company NRG Energy Inc's NRG Yield Inc , which made its stock market debut last July.

Shares of NRG Yield, which also holds wind and natural gas assets, have gained nearly 42 percent since going public.

The company pays an annual dividend of $1.20 per share and plans to increase its dividend to $1.45 per share by the third quarter of 2014, Chief Financial Officer Kirkland Andrews told Reuters.

Canadian Solar is considering launching a yield co, spokesman Ed Job said, adding that the process could take a year or more.

The Guelph, Ontario-based company, which has most of its manufacturing operations in China, believes Chinese plants can offer competitive yields and is considering exchanges in the United States, Hong Kong and Singapore for a possible listing.

China's JinkoSolar said on Monday it was looking at alternatives for its power plant business, including taking it public.

Chinese companies, however, might be a harder sell for U.S. retail investors dipping their toes into solar for the first time.

Plagued by over-capacity, solar investment in China practically ground to a halt before new industry guidelines introduced last year prompted a revival.

Jesse Pichel, an investment banker at Roth Capital Partners who specializes in clean technology, said yield cos spun off from Chinese companies were unlikely to fare well in the United States and would have to pay higher dividends to offset risk.

Investors in Hong Kong or Singapore might be more receptive to Chinese projects, he said.

SunEdison's Wuebbels said his company's U.S.-listed yield co was likely to include projects in the United States, Canada, Mexico, Chile, Britain and Japan.

The company plans to list a separate unit, holding projects elsewhere in Asia and South Africa, on a stock exchange in Asia, he said.

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