EBODF Owns Over $22 Per Share Of Solar Developer Goldpoly,Trades Under $7

by Shawn Kravetz

In ten years of solar investing, we have never encountered an opportunity as obscure and potentially lucrative as Renewable Energy Trade Board Corporation (OTCPK:EBODF).  Disclosure: I am long EBODF.

Before walking through the long thesis, we must caution potential investors that EBODF “went dark” with the SEC in March 2013. However, we have conducted rigorous due diligence on the ground in Asia and through the Hong Kong Stock Exchange filings of Goldpoly New Energy Holdings (0686.HK) – EBODF’s sister company sharing the same parent/leading shareholder – China Merchants New Energy Group (part of massive Chinese State-Owned-Enterprise China Merchants Group). Further reinforcing our view, EBODF engaged in several publicly disclosed transactions in December 2013 (http://tinyurl.com/q5z58lp and http://tinyurl.com/klrjtg8). Given its tremendous unappreciated value and recent activities, we suspect EBODF will not remain “dark” for much longer.

So what excites us about an anonymous, tiny solar company?

• Simply stated, EBODF owns a sizeable stake in its sister company Goldpoly New Energy Holdings – the premier, Chinese solar independent power producer (IPP) listed in Hong Kong with a $1.3B market capitalization
• Those shares of 686 HK alone are worth ~4.0X EBODF’s current market capitalization or ~$22 per share
• While we believe that several other intriguing catalysts/options could drive EBODF to even greater heights, we believe that the 686 HK position alone holds tremendous value not reflected in EBODF’s share price.

Goldpoly (0686.HK)

US investors covet exposure to downstream solar economics as evidenced by oversubscribed capital raises from US-listed, downstream solar companies in the past few months:

1. Jinko Solar (JKS) just raised ~$260M in January 2014 by marketing the deal as a means to gain exposure to Chinese downstream projects
2. SunEdison (SUNE) raised $1.2B through 2 convertible bonds in December 2013 to finance 2014 downstream solar plans
3. SolarCity (SCTY) raised ~$400M in October 2013 to finance its rapidly growing downstream business

While US investors have flocked to companies offering exposure to downstream solar projects, they likely have gazed right past the best positioned downstream solar opportunity, Goldpoly. We believe that owning EBODF offers a massively discounted method to invest in Goldpoly shares.

Goldpoly is the leading solar power plant investor and operator in China and one of the largest in the world

• Whereas SolarCity manages ~460 megawatts (MW) of solar projects, Goldpoly operates ~530 megawatts of grid-connected solar projects in China
• In addition, Goldpoly has ensured years of future growth having harvested a robust 7 gigawatts (GW) project pipeline through strategic alliances with powerful state-owned enterprises like State Grid Corporation (controls China’s electric network) and China Guodian (massive Chinese power company) as well as major solar players like GCL (3800.HK), Yingli (YGE), and Zhongli Talesun Solar (002309 CH)
• Unlike its US-listed peers, Goldpoly enjoys strong sponsorship from its leading shareholder and state-owned enterprise China Merchants Group
• Despite an operating portfolio and pipeline that every US-listed solar company would envy coupled with a unique platform and strategic alliances, Goldpoly trades a steep discount to its US-listed peers
• While downstream solar models differ from company to company, we think a simple comparison between Goldpoly and its US-listed peers reveals this discrepancy:

We believe this discount will evaporate as Goldpoly continues to deliver on its lucrative pipeline and is recognized as the leading global, solar downstream player. However, rather than wait for that discount to fade, we prefer to exploit this arbitrage opportunity and express our view on Goldpoly through EBODF today.

EBODF Stake in Goldpoly (686 HK)

• EBODF acquired its stake in Goldpoly through a series of transactions involving the sale of various assets in exchange for 686 HK shares back in May and November 2012
• As a result of these transactions, EBODF beneficially owns ~42.2M shares of Goldpoly and another ~160M underlying shares from an in-the-money convertible bond
  • EBODF also may have received another 23M shares of Goldpoly in consideration for some other asset sales, but Goldpoly’s most recent filings cannot verify these incremental shares
    • As such, we do not include these 23M shares worth ~40-50% of EBODF’s current market cap in our valuation of EBODF
  • Details of the transactions available here (pages 17-18)
• Interestingly, EBODF acquired another 1M shares on the open market on December 9, 2013 – EBODF’s first acquisition of Goldpoly shares since 2012
• To further buttress our view, Goldpoly’s Hong Kong Stock Exchange filings and further validated that EBODF still retains their Goldpoly stake via a November 2013 proxy statement (pages 34-35)

Confident that EBODF still owns a major stake in Goldpoly, we value that stake at nearly $50M or ~$22 per share. This valuation EXCLUDES the incremental but unverifiable 23M shares of Goldpoly noted above which are worth ~$2.25 per share.

Since EBODF has not filed a balance sheet since the June 30, 2012 period, we EXCLUDE the $5/share in net cash & equivalents reported for that period. For conservatism, we ascribe no value to the non-Goldpoly net assets which totaled $2.64 per share as of last filing. However, including these items leads to a valuation closer to $30 per share for EBODF.

Free Options/Catalysts

Our diligence also suggests that EBODF may be pursuing a truly unique downstream solar strategy to complement 686 HK which entails:

1. Acquiring
   distressed and underperforming Chinese solar projects and re-selling the rehabilitated assets (likely to 686 HK on a right of first refusal basis)
2. Brokering solar project transactions – connecting buyers and sellers for a fee
3. Arranging financing/structuring such as sale-leasebacks and collateralized loans for solar projects

Finally, we hypothesize that the leading shareholder of 686 HK and EBODF, China Merchants New Energy Group, may be taking notice of US investors’ insatiable appetite for downstream solar exposure as noted above and could seek to capitalize through its US-listed entity – EBODF. In December 2013, EBODF co-invested in a sizeable solar project with 686 HK, and while we admit no special insight on this topic, we find the timing peculiar given the capital market activities by other downstream players. We speculate that China Merchants could transform EBODF into a US-listed version of HK-listed Goldpoly thereby unleashing the first US-listed, Chinese solar yield vehicle offering US investors’ exposure to downstream solar economics in China.

We ascribe no value to either option above; however, should either of these scenarios materialize, we believe EBODF is worth many multiples of the 686 HK stake.

Conclusion

With a $22-$30 per share of conservative intrinsic value plus the free option of a potential first mover, US-listed solar yield generating vehicle, we believe EBODF will quickly emerge from the dark.

Shawn W. Kravetz is President of Esplanade Capital LLC, a Boston-based investment management company.   Esplanade Capital manages two private investment partnerships.   Esplanade Capital Partners I LLC, launched in 2000, is focused on a handful of sectors, including: retail, consumer products, casino gaming, business services, education, and solar power.   Esplanade Capital Electron Partners LP, launched in 2009, intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.