China Wind eyes the Nasdaq with reverse stock split

Wuxi, China-based China Wind Systems (OTC:CWSI) says it's headed to the Nasdaq or New York Stock Exchange Amex Equities, it’s just a matter of when the company is going to get there.

On the heels of announcing a one-for-three reverse stock split, CFO Leo Wang told the Cleantech Group the company hasn’t set a definitive timeframe. But as soon as it submits an application to one of the exchanges, the process could be finalized in four to six weeks.

China Wind supplies forged rolled rings, wind tower flanges and gear rims—all components of gearboxes—to wind power and other industries in China.

China Wind said last week that its board of directors approved a one-for-three reverse stock split of the company’s common stock. Holders of a majority of the company’s outstanding stock also consented to the reverse split, which is expected to become effective by late September.

“For some time now, we have been planning on upgrading the company to a major national stock exchange, and the reverse split was a step in that direction,” Wang said.

Wang said the Nasdaq—which is the company’s first preference—requires a minimum share price of $4 per share. The company, with a market cap of $61.7 million, has had a 52-week range of $1.30 to $1.35. He said the one-for-three reverse split is expected to bring the company’s stock price above or in line with the Nasdaq requirement.

The company currently has about 46 million shares of common stock outstanding. After the reverse split, it would have about 15.3 million shares outstanding.

“It’s to improve the liquidity and trading of our stock, which will make the stock more attractive to investors,” said Wang, adding that a Nasdaq listing would also help the company attract an institutional investor base.

Since 2007, the company has been selling forged rolled rings to yaw-bearing manufacturer Luoyang, and more recently a $14 million contract to supply wind tower flanges to Chengxi Shipyard, with General Electric being the end beneficiary (see GE behind China Wind’s newest $14M contract). 

China Wind has said it is on a schedule to deliver 800 to 1,200 tons per month of wind tower flanges to Chengxi Shipyard, a ship repair and new building enterprise located in China’s Jiangsu City, between September 2009 and June 2010.

China Wind has a wind turbine component manufacturing facility in Wuxi City, which started production earlier this year. It is expected to have a 40,000 ton annual capacity by the end of 2010, with the GE contract taking up one-fourth of that, Wang said (see China Wind starts production at new factory). 

Wang said the facility is expected to be at 50 percent capacity by the end of this year.

The facility was certified in July by the International Organization for Standardization (see China Wind gets ISO approval for new facility).

The gearbox shortfall China Wind was rushing to meet at its facility a year ago continues (see China Wind ramps to meet gearbox shortfall). But the company said it is also seeing more demand for its products because of new wind targets set by the government.

In July, China set a target for installed wind power capacity to reach 150 gigawatts by 2020, with 30 GW coming from offshore wind farms.

It’s proving to be a powerful driver for new players to enter the market, while providing additional growth opportunities for incumbents, Wang said.

The feedback his company is receiving is that wind field developers are going to need more components to meet the target, with the $14 million contract in July as a sign that it’s already starting, he said. 

The government has indicated a number of ways it plans to help companies meet the target including increasing the feed-in tariff, subsidized interest-rate loans to wind farm developers and subsidies to wind turbine manufacturers.

The Chinese government has already established subsidies for solar, lighting and other cleantech sectors (see New solar subsidies in China set to reduce installed cost by half and Latest Chinese cleantech subsidy goes to lighting).

Wang said his company hasn’t actively sought any government subsidies, although it received a RMB 1 million ($146,000) grant from the Wuxi government in June to support its efforts.

China Wind is also looking into adding a new electro-slag re-melted (ESR) facility to be able to charge more for its products. ESR is a process used to make a higher-quality form of steel that’s suitable for nuclear power plants and wind turbine components, Wang said. The material is more fatigue resistant and doesn’t require further processing.

“We haven’t pulled the trigger and said, ‘Let’s go,’” Wang said. 

Wang said the company would be able to charge three times the price of its normal forged products if it used ESR, leading to potentially 37 percent higher gross margins.

The facility would be housed within the company’s current 108,000-square-foot production facility, and would cost under $6 million to build.

Half of the funds would come from internal sources, while the other half would come from exercising in-the-money warrants, Wang said. Once funding is secured, he said it would take eight months to put in place.

The facility would have a 6,000-ton annual capacity and a massive furnace, making it among the few companies in China with that kind of output for ESR technology, Wang said. Ryan Hua, the company’s vice president of operations, said he’s already hearing interest from customers in the higher-quality product.