GCL New Energy's 1GW asset disposal improves liquidity

   S&P Global Ratings said today that a planned asset sale by GCL New Energy Holdings Ltd. (B+/Negative/--)(GNE)(00451) will replenish the company's liquidity.
  However, the improvement is insufficient to have a rating impact. GNE proposed to dispose of 70% of its equity interest in 19 of its operational solar plants and its associated shareholder loans, with a consideration of about RMB1.7 billion, which will be paid in installments.
  GNE's liquidity will overall remain constrained, even after incorporating the disposal proceeds. The company had reported short-term debt maturity of RMB9.4 billion at end-2018. This includes RMB1.9 billion of non-current borrowings, for which the guarantor has managed to obtain a waiver in 2019 and is subject to annual review.
  GNE's cash and short-term pledged deposits were around RMB2.6 billion over the same period. S&P believes the company may need to accelerate the pace of its asset disposals to further improve its liquidity.
  GNE's ratio of funds from operations to debt increased to around 6% in 2018, from less than 4% a year ago. This is attributable to a 47% increase in its electricity sales in China and a slowdown in debt-funded capital expenditure.
  However, its tariff-subsidy receivables increased by RMB2.5 billion year over year to approximately RMB6.8 billion at end-2018. GNE has been attempting to divest equity stakes in its solar farms to deleverage and ease liquidity stress to offset delays in such payments. However, previous attempts at equity sales were slow and did not translate to meaningful funding.
  Upon the completion of the disposals, GNE will become the minority shareholder of the solar plants and will no longer consolidate these projects onto its books. The company, however, will continue to be responsible for operational and maintenance work for these solar plants. The remaining shares held by GNE will also be pledged to the buyer until some of the ratification work has been completed.