Why Ming Yang chief wants to go private


November 16, 2015

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Chinese turbine maker Ming Yang this month announced that its CEO, Chuanwei Zhang, is bidding to buy the two-thirds of shares in the firm that he does not own.

Zhang is looking to buy each of the 125,075,000 shares he does not own for $2.51 each, which would make the total deal worth around $315m. He said he planned to fund the transaction through a combination of debt and equity.

Given that Ming Yang’s share price is down by more than 40% since its high in May — at around $2.13 now — then this could look like a panicky move from Zhang in response to the turmoil in the Chinese stock market. But it is actually far from it.

Zhang is a serial entrepreneur. He started the corporate empire that became Ming Yang in 1993, and added the wind turbines arm in 2005. He will be well aware that the troubles in the Chinese stock market make this a relatively good time to buy, as long as he believes that the market fundamentals are strong.

And it looks like they are. Ming Yang’s wind arm appears to be in a good place financially. The firm reported second-quarter sales of 647.5MW, an order backlog of 3.7GW, and a profit of 68m yuan (£7.1m), up a significant 17.2% year on year.

Furthermore, the Chinese government is maintaining its support for the wind sector. Beijing recently announced plans to cut feed-in tariffs, which is not a great sign, but it also means there is likely to be a rush to build projects that would fall under the current tariff
rate before it is reduced. This means sales of Ming Yang turbines are likely to stay strong for the rest of this year and into next year.

And beyond that, China’s leaders have not indicated any huge shift from wind. So the fundamentals of the company and the wind market look good, but that still does not explain why Zhang is so keen to take the company private now. He has not given away much about his intentions, but we have a good idea.

In the last few years, Ming Yang has been trying to expand into markets outside China, but has not made the progress that Zhang would have liked.

In our view, the move towards privatisation shows that he wants to break away from shareholders, so he can react more quickly to market changes without having to answer to external investors. Entrepreneurs like flexibility, and privatisation can give that.

There are also wider questions over the Chinese economy.

Ming Yang is China’s third-largest turbine maker, but Zhang will not want to keep the fortune of the firm so tightly bound up with the future of the Chinese economy. Electricity consumption only grew 1.3% in the first six months of 2015, which is the lowest rate of growth in China in three decades — and does sound alarm bells on the nation’s prospects.

Going private can give the flexibility that Zhang wants to stop Ming Yang being so reliant on China. At least, that is what he will hope.

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