Cleantech Cos. Wait for IPO Market to Open Up

NEW YORK (Reuters) – While the fast-growing alternative energy sector has offered promise as other industries suffer under a weakening economy, that will not be the case in the IPO market for solar and wind companies in the near future, with many expected to sit on the sidelines well into 2009.

After a spate of IPOs by alternative energy companies in 2007 that performed well, newcomers to the market have all but come to a complete halt. So far this year, there have only been two stock issues, both by solar energy companies: a $55 million deal in May by Real Goods Solar Inc (RSOL.O: Quote, Profile, Research, Stock Buzz), and a $500 million IPO by GT Solar International Inc (SOLR.O: Quote, Profile, Research, Stock Buzz) in July.

Both companies have seen their stocks slide in recent months, like most alternative energy companies this year, despite the fast growth of the sector.

Real Goods Solar is pricey, now trading at 55 times estimated 2009 earnings, while GT Solar is a relative bargain at 4.69. That compares with an average for the Nasdaq Industrial Index , of which both are members, of 9.2 times.

“It’s going to be tough in the near term for alternative energy companies wanting to go public, at least until early in the second quarter of 2009,” said Al Kaschalk, an analyst with Wedbush Morgan Securities.

Solar companies have been hit especially hard because of fears that prices for solar panels will fall after recently imposed limits on subsidies in Spain and Germany, the two largest markets in the world.

And while the recent $700 billion financial bailout package passed by the U.S. government included earmarks to extend tax credits for solar and wind projects, the high costs of installing solar panels in homes and businesses may prove to be prohibitive with a recession looming.

The worsening credit crisis could also put a crimp in the industry’s project annual growth of 40 percent to 50 percent annually in the coming years, according to Stephen Chin, an analyst with UBS Securities (UBSN.VX: Quote, Profile, Research, Stock Buzz).

“Solar companies trying to sell technology for very large gigawatt projects which require significant project financing are most vulnerable to the effects of the credit crisis,” Chin said.

TOUGH SELLS

Still, any new deals in the sector will be tough sells.

“The solar companies have been volatile and with oil prices down, investors have been concerned about alternative technologies,” said Kathleen Smith, chairwoman of Connecticut-based research firm Renaissance Capital. “And right now, people are running scared from stocks, period.”

Oil prices on Thursday slumped to below $70 a barrel, a 50 percent decline since early July, and many analysts now expect them to fall further, which would make it harder for alternative energy sources to compete on costs.

Last week, German solar technology company Schott Solar (S9SG.DE: Quote, Profile, Research, Stock Buzz) called off its planned IPO.

POOR PERFORMERS

According to the most recent data available, Renaissance Capital’s Green IPO Index, which it launched this summer and tracks 24 “green” companies, was down 52 percent for the year at the end of September. That was below Renaissance Capital’s overall IPO index, which fell 33 percent, and the S&P 500’s fall of 20 percent, over the same period.

The weak performance has dimmed the prospects for other green tech companies that do want to go public.

Yet despite those headwinds, a handful of alternative energy companies in the summer filed prospective deals totaling $2.3 billion, according to ThomsonReuters data, making it one of the top sectors in the pipeline.

That includes a planned blockbuster $863 million stock flotation by Chinese polysilicon and wafer supplier GCL Silicon Technology Holdings Inc, along with wind energy company First Wind Holdings Inc’s planned $450 million IPO in July. A123 Systems Inc, a maker of lithium batteries for cars, has an estimated $175 million deal. None of these companies have yet scheduled their IPO’s pricing.

PAST THE POINT OF NO RETURN

But analysts said the long-term outlook for the alternative energy sector remains positive if it can prove it is viable with or without subsidies.

“There’s an interest in any kind of alternative energy – but the question is economics,” Smith said. “It’s going to depend on subsidies.”

As long as green stocks remain jumpy, risk-averse investors are also likely to avoid new green companies.

“I think if you are talking about the next year, public offerings are probably not a reasonable thing to plan on,” venture capitalist Vinod Khosla said at the Reuters Global Environment Summit last week.

By Phil Wahba
(Additional reporting by Nichola Groom in Los Angeles; Editing by Bernard Orr and Maureen Bavdek)