Canadian Solar plans Japan 'yieldco' IPO

Canadian Solar may have given up on its plan to launch a US-listed renewables yieldco, but the PV giant is targeting another country for an initial public offering: Japan.

In addition to being one of the world’s largest manufacturers of PV modules, Ontario-based Canadian Solar has transformed in recent years into a major international developer of utility-scale projects, with nearly 500MW of operating capacity on its books today and another 2.4GW in late-stage development.

Having once and for all scrapped its plan for a US yieldco last week, citing poor conditions in the capital markets, Canadian Solar is now readying a 2017 initial public offering for a “Japanese yieldco”, says chief executive Shawn Qu.

In doing so, Canadian Solar will be taking advantage of newly passed tax laws that allow solar developers in Japan to bundle projects into publicly listed real-estate investment trusts – known as J-REITs.

“Our plan for our Japanese assets, our first priority, is to launch a solar J-REIT,” Qu told analysts last week. “In other words, an IPO for a Japanese yieldco, if you can call this a yieldco.”

The new Japanese laws allow a developer to bundle solar projects into a “business trust that enjoys the tax considerations of a REIT”, Qu explains. “We’re targeting the IPO of our Japanese solar assets, the J-REIT, probably in Q2 or Q3 next year.”

Japan accounts for the second largest chunk of Canadian Solar’s international project pipeline, with 576MW of late-stage solar farms to be built in the country through 2022 – 112MW of it already under construction.

Canadian Solar owns 21MW of operating PV capacity in Japan today.

The new laws in Japan amount to a “tax holiday” for solar projects, Qu says. “Therefore, we actually see an appreciation of the value of our Japanese assets.”

“Within 12 months, if everything goes according to plan, you could see us owning a Japanese solar J-RET listed on the Tokyo Exchange,” he says.

The US remains the largest market for Canadian Solar’s downstream projects business, with the company to take an astounding 1.2GW of new US capacity into commercial operation in the second half of 2016 – including the recently completed 100MW Mustang in California.

Canadian Solar last year revealed its intention to launch a yieldco in the US to more efficiently monetise its projects, but investors’ chilly reception to yieldco stocks of late ultimately convinced the company to scrap its IPO plan.

“We’ve been patiently waiting for and evaluating the market,” Qu explained last week. “But the environment is clearly unsupportive of equity offerings overall, and even less supportive of yieldco offerings.”

Canadian Solar will instead focus on other ways to monetise its downstream assets, including selling large stakes in projects to buyers like Southern Power.

The company greatly expanded its downstream presence in the US through its acquisition of developer Recurrent Energy from Sharp.