(Yicai Global) Nov. 19 -- Zhonghuan Semiconductor, a Chinese supplier of silicon wafers, said its planned investment in a new overseas solar panel production company hived off from US energy giant SunPower is well grounded after the move triggered concerns among investors.

Under the deal announced last week, Zhonghuan would invest USD298 million in Maxeon Solar for about 28.8 percent of the new Singapore-based company, becoming its second-largest shareholder and valuing it at USD1.03 billion. The investment was agreed after comprehensive research, Jiemian News reported today, citing a statement from Tianjin-based Zhonghuan.

Investors have posted messages on social media, pointing out that SunPower had been losing money for years and that its net assets were negative. The Shenzhen Stock Exchange also wrote to Zhonghuan, asking it to explain the proposed deal's necessity and feasibility, as well as fundraising channels and provide answers to many other questions.

Zhonghuan Semiconductor was in talks with SunPower and its majority owner French oil giant Total for three years from 2017, and due diligence and verification has fully demonstrated the economics of the investment, the company said today.

It also noted that Maxeon's main products are interdigitated back contact solar cells and relevant components. This technology is one of the most popular battery technologies in the photovoltaic industry, and its design absorbs more sunlight, improving the efficiency of photovoltaic conversion. Maxeon will have production plants in France, Malaysia, Mexico, and the Philippines.

Shares of Zhonghuan [SHE:002129] rose 2 percent today to close at CNY11.21 (USD1.60) each. They are down about 5.5 percent since Nov. 11, when the company announced its intention to buy into Maxeon.

Revenue Outlook

Zhonghuan expects Maxeon to generate revenue of USD1 billion to USD1.2 billion in 2020, with a gross profit margin of between 9 percent and 12 percent. Maxeon's operating income will increase by 10 percent to 20 percent in 2021 from the previous year, with the gross profit margin exceeding 15 percent, it added.

In addition, at today's investors' meeting Zhonghuan Vice President Zhang Changxu revealed that SunPower's net assets in 2018 were valued at minus USD150 million, which is not the value of Maxeon's assets after the spin-off. Under the deal, Maxeon's assets were valued at USD670 million after the spin-off, with SunPower bearing the majority of liabilities.

Deal Funding

Zhonghuan revealed that 60 percent of the funding for the deal will be raised from financial institutions, adding that there is no risk of overdue debt as it has secured letters of intent for bank loans after contacting various financial institutions with different ownerships.

It still needs to register the deal with China's National Development and Reform Commission, the Ministry of Commerce and the State Administration of Foreign Exchange, a procedure which is expected to be completed within three months, the company said. The ministry's anti-trust probe, meanwhile, is set to come to an end within four to six months.

Formed in 1999, Zhonghuan Semiconductor, formerly known as Tianjin No. 3 Semiconductor Factory, went public on the Shenzhen Stock Exchange in 2007, with new energy, semiconductor, photovoltaic power generation and finance as its four businesses.