Filed Pursuant to 424(b)(5)
333-155782

 

Subject to Completion, Dated June 15, 2009
Preliminary Prospectus Supplement to Prospectus Dated June 15, 2009

 

 

Yingli Green Energy Holding Company Limited

 

 

		Per ADS		Total
Public offering price		US$		US$
Underwriting discounts and commissions		US$		US$
Proceeds, before expenses, to us		US$		US$
Proceeds, before expenses, to the selling shareholder		US$		US$

Deutsche Bank Securities

Credit Suisse

Citi

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

 

Prospectus

 

 

 

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person, including the selling shareholder, to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Neither we nor the selling shareholder nor any of the underwriters is making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates, regardless of the time of delivery of this prospectus supplement and the accompanying prospectus or any sale of our ADSs. Our business, financial condition, results of operations and prospects may have changed since those dates.

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS SUPPLEMENT AND

THE ACCOMPANYING PROSPECTUS

 

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and other information. The second part consists of the accompanying prospectus, which gives more general information, some of which may not be applicable to this offering. You should read both this prospectus supplement and the accompanying prospectus, together with additional information described in the sections entitled “Where You Can Find More Information About Us” and “Incorporation of Documents by Reference.”

 

If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

You should not consider any information included in this prospectus supplement and the accompanying prospectus to be investment, legal or tax advice. You should consult your own counsel, accountant and other advisors for legal, tax, business, financial and related advice regarding any purchase of the ADSs offered by this prospectus supplement and the accompanying prospectus. We are not, and the underwriters are not, making any representation to any offeree or purchaser of our ADSs regarding the legality of an investment in our ADSs by that offeree or purchaser under appropriate investment or similar laws.

 

SPECIAL NOTE REGARDING COMBINED FINANCIAL DATA

 

We, or Yingli Green Energy, were incorporated on August 7, 2006. On September 5, 2006, Yingli Group Co., Ltd., or Yingli Group, an entity controlled by Mr. Liansheng Miao, the chairperson of the board of directors and chief executive officer of Yingli Green Energy, who also controls our controlling shareholder, Yingli Power Holding Company Ltd., or Yingli Power, transferred its 51% equity interest in Baoding Tianwei Yingli New Energy Resources Co., Ltd., or Tianwei Yingli, to Yingli Green Energy. As Yingli Group and Yingli Green Energy were entities under common control at the time of the transfer, the 51% equity interest in Tianwei Yingli was recorded by us at the historical cost to Yingli Group, which approximated the historical carrying values of the assets and liabilities of Tianwei Yingli. For financial statements reporting purposes, Tianwei Yingli was deemed to be our predecessor for periods prior to September 5, 2006.

 

In our discussion of the results for the year ended December 31, 2006, we refer to certain line items in the statement of income or statement of cash flow as “combined” for comparative purposes. These combined amounts represent the addition or reconciliation of the amounts for certain line items in the statement of income or statement of cash flow of Tianwei Yingli, our predecessor, for the period from January 1, 2006 through September 4, 2006, and the amounts for the corresponding line items in the statement of income or statement of cash flow of us, for the period from August 7, 2006 (date of inception) through December 31, 2006. For the period from August 7, 2006 (date of inception) through September 4, 2006, during which the financial statements of the predecessor and those of Yingli Green Energy overlap, Yingli Green Energy did not engage in any business or operations.

 

The combined financial data for the year ended December 31, 2006 do not comply with accounting principles generally accepted in the United States, or U.S. GAAP, or the rules relating to pro forma presentation. We are including these combined amounts to supplementally provide information which we believe will be helpful to gain a better understanding of our results of operations and improve the comparative period-to-period analysis. These combined amounts do not purport to represent what our results of operations would have been in such periods if Yingli Group had transferred its 51% equity interest in Tianwei Yingli to us on January 1, 2006.

 

PROSPECTUS SUPPLEMENT SUMMARY

	•	“€” and “Euro” are to the legal currency of the member states of the European Union that adopted such currency as their single currency in accordance with the Treaty Establishing the European Community (signed in Rome on March 25, 1957), as amended by the Treaty on European Union (signed in Maastricht on February 7, 1992);
	•	“US$” and “U.S. dollars” are to the legal currency of the United States;
	•	“ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs;
	•	“ADSs” are to our American depositary shares, each of which represents one ordinary share, par value US$0.01 per share, of our company;
	•	“China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;
	•	“RMB” and “Renminbi” are to the legal currency of China;
	•	“shares” and “ordinary shares” are to our ordinary shares, par value US$0.01 per share; and
	•	“we,” “us,” “our” and “our company” refer to Yingli Green Energy Holding Company Limited, a company incorporated in the Cayman Islands, and all direct and indirect consolidated subsidiaries of Yingli Green Energy Holding Company Limited, unless the context otherwise requires or as otherwise indicates.

Price per ADS		US$      per ADS
ADSs offered by us		12,500,000 ADSs
ADSs offered by the selling shareholder		3,000,000 ADSs
Ordinary shares outstanding immediately after this offering		142,489,700 ordinary shares, excluding ordinary shares issuable upon the exercise of outstanding share options, issued but unvested restricted shares, and ordinary shares reserved for issuance under our 2006 stock incentive plan.
ADSs outstanding immediately after this offering		90,074,202 ADSs, assuming no exercise of the underwriters’ option to purchase additional ADSs from us.
Over-allotment option		We have granted to the underwriters a 30-day option to purchase up to 2,325,000 additional ADSs.
ADSs		Each ADS represents one ordinary share, par value US$0.01 per share. The ADSs will be evidenced by ADRs.
		The depositary will be the holder of the ordinary shares underlying the ADSs and you will have the rights of an ADR holder as provided in the deposit agreement among us, the depositary and owners and beneficial owners of ADSs from time to time.
		You may surrender your ADSs to the depositary to withdraw the ordinary shares underlying your ADSs. The depositary will charge you a fee for such an exchange.
		We may amend or terminate the deposit agreement for any reason without your consent. If an amendment becomes effective, you will be bound by the deposit agreement as amended if you continue to hold your ADSs.
		To better understand the terms of the ADSs, you should carefully read the section in the accompanying prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus supplement and the accompanying prospectus.

Depositary		JPMorgan Chase Bank, N.A.
New York Stock Exchange trading symbol		“YGE”
Use of proceeds		We estimate that we will receive net proceeds of approximately US$163.1 million from this offering, assuming a public offering price of US$13.76 per ADS based on the last trading price of our ADSs on June 12, 2009 and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
		We intend to use the net proceeds we receive from this offering for the following purposes:
		• approximately US$50.0 million to repay the loan facility provided to our subsidiary, Yingli Energy (China) Co., Ltd., or Yingli China, by a fund managed by Asia Debt Management Hong Kong Limited, or ADM Capital; and
		• the remaining amount to repay other existing indebtedness to improve our balance sheet position and for other general corporate purposes.
		We will not receive any of the proceeds from the sale of ADSs by the selling shareholder.
		See “Use of Proceeds” for additional information.
Risk factors		You should carefully consider the information set forth in the sections of this prospectus supplement and the accompanying prospectus entitled “Risk Factors,” as well as other information included in or incorporated by reference into this prospectus supplement and the accompanying prospectus before deciding whether to invest in the ADSs.

		Predecessor					Yingli Green Energy
		For the Period					For the Period
		from January 1,					from August 7,
		2006 through					2006 through
		September 4,					December 31,				For the Year Ended December 31,
		2006					2006				2007				2008				2008
		RMB					RMB				RMB				RMB				US$
		(in thousands, except per share and per ADS data)
Consolidated Income Statement Data
Net revenues			883,988					754,793				4,059,323				7,553,015				1,107,074
Gross profit			272,352					179,946				956,840				1,629,609				238,858
Income from operations			234,631					132,288				679,543				1,153,300				169,044
Interest expense			(22,441	)				(25,789	)			(64,834	)			(149,193	)			(21,868	)
Foreign currency exchange losses, net			(3,406	)				(4,693	)			(32,662	)			(66,286	)			(9,716	)
Gain (loss) on debt extinguishment			—					(3,908	)			—				—				—
Income tax benefit (expense)			(22,546	)				(22,968	)			(12,928	)			5,588				819
Minority interests			76					(45,285	)			(192,612	)			(293,300	)			(42,990	)
Net income			186,223					30,017				389,020				666,764				97,730
Net income applicable to ordinary shareholders								23,048				335,869				666,764				97,730
Basic earnings per share applicable to ordinary shareholders(1)(2)								0.36				3.00				5.23				0.77
Diluted earnings per share(1)(2)								0.36				2.89				5.15				0.75
Basic earnings per ADS(1)(2)								0.36				3.00				5.23				0.77
Diluted earnings per ADS(1)(2)								0.36				2.89				5.15				0.75

										For the Year
										Ended December 31,
		Predecessor				Yingli Green Energy
		For the Period				For the Period
		from January 1,				from August 7,
		2006 through				2006 through
		September 4,				December 31,
		2006				2006				2007				2008
		(in percentages)
Other Consolidated Financial Data
Gross profit margin(3)			30.8	%			23.8	%			23.6	%			21.6	%
Operating profit margin(3)			26.5	%			17.5	%			16.7	%			15.3	%
Net profit margin(3)			21.1	%			4.0	%			9.6	%			8.8	%

		As of December 31,
		2006				2007				2008
		RMB				RMB				RMB				US$
		(in thousands)
Consolidated Balance Sheet Data
Cash and restricted cash			400,234,858				968,241				1,218,148				178,549
Accounts receivable, net			281,921				1,240,844				1,441,949				211,352
Inventories			811,746				1,261,207				2,040,731				299,118
Prepayments to suppliers			134,823				1,056,776				774,014				113,450
Total current assets			1,722,295				5,074,225				6,062,020				888,534
Long-term prepayments to suppliers			226,274				637,270				674,164				98,815
Property, plant and equipment, net			583,498				1,479,829				3,385,682				496,252
Total assets			2,813,461				7,658,896				11,068,683				1,622,380
Short-term borrowings and current portion of long-term bank borrowings(4)			267,286				1,261,275				2,044,200				299,626
Total current liabilities			649,002				1,519,577				2,829,419				414,719
Convertible senior notes			—				1,262,734				1,241,908				182,031
Long-term bank borrowings, excluding the current portion			—				—				662,956				97,172
Total liabilities			1,339,878				2,902,272				4,922,621				721,528
Minority interests			387,716				754,799				1,395,151				204,493
Total owners’/shareholders’ equity			68,530				4,001,825				4,750,911				696,359

		For the Year Ended December 31,
		2006				2007				2008
Consolidated Operating Data
PV modules sold (in megawatts)(5)			51.3				142.5				281.5
Average selling price of PV modules (per watt in US$)(6)			3.82				3.86				3.88

(1)		Commencing January 1, 2007, our primary operating subsidiary, Tianwei Yingli, began enjoying certain exemptions from income tax. Prior to January 1, 2007, there was no tax exemption in place.
		The net income, basic and diluted earnings per share effects of the tax holiday for the years ended December 31, 2007 and 2008 are as follows:

		For the Year Ended December 31,
		2007				2008
		RMB				RMB				US$
		(in thousands, except per share data)
Net income			78,357				196,873				28,856
Basic earnings per share			0.80				1.55				0.23
Diluted earnings per share			0.78				1.52				0.22

(2)		Tianwei Yingli, our predecessor, is not a share-based company and had no outstanding shares for the period presented, and therefore, we have not presented earnings per share for Tianwei Yingli.
(3)		Gross profit margin, operating profit margin and net profit margin represent gross profit, operating profit and net profit, respectively, divided by net revenues.
(4)		Includes loans guaranteed or entrusted by related parties, which amounted to RMB 233.0 million, RMB 470.2 million and nil, as of December 31, 2006, 2007 and 2008, respectively.
(5)		PV modules sold, for a given period, represents the total PV modules, as measured in megawatts, delivered to customers under the then effective supply contracts during such period.
(6)		We compute average selling price of PV modules per watt for a given period as the total sales of PV modules divided by the total watts of the PV modules sold during such period, and translated into U.S. dollars at the noon buying rate at the end of such period as certified by the United States Federal Reserve Board.

		For the Three Months Ended
		March 31, 2008				December 31, 2008
		(As adjusted)				(As adjusted)				March 31, 2009
		RMB				RMB				RMB				US$
		(in thousands, except per share and per ADS data)
Summary Consolidated Statement of Operations Information
Total net revenues			1,595,045				1,761,199				999,899				146,336
Gross profit			392,268				232,934				152,487				22,317
Operating expenses			(109,605	)			(135,138	)			(132,107	)			(19,334	)
Income from operations			282,663				97,796				20,380				2,983
Interest expense			(37,698	)			(51,658	)			(79,005	)			(11,563	)
Foreign currency exchange gain (loss)			66,316				68,664				(93,635	)			(13,704	)
Earnings (loss) before income taxes			318,509				118,963				(174,031	)			(25,470	)
Income tax benefit			652				3,051				12,989				1,901
Net income (loss)			319,161				122,014				(161,042	)			(23,569	)
Net income (loss) attributable to Yingli Green Energy			220,213				82,038				(141,565	)			(20,718	)
Weighted average shares and ADSs outstanding:
Basic			127,336,911				127,447,821				127,864,391				127,864,391
Diluted			129,576,705				128,119,081				127,864,391				127,864,391
Earnings (loss) per share and per ADS:
Basic			1.73				0.64				(1.11	)			(0.16	)
Diluted			1.70				0.64				(1.11	)			(0.16	)

		As of				As of
		December 31, 2008				December 31, 2008				As of
		(As previously reported)				(As adjusted)				March 31, 2009
		RMB				RMB				RMB				US$
		(in thousands)
Summary Consolidated Balance Sheet Information
Cash and restricted cash			1,218,148				1,218,148				1,362,355				199,382
Accounts receivable, net			1,441,949				1,441,949				1,877,787				274,816
Inventories			2,040,731				2,040,731				2,355,364				344,709
Prepayments to suppliers			774,014				774,014				453,124				66,315
Total current assets			6,062,020				6,061,133				6,594,639				965,130
Long-term prepayments to suppliers			674,164				674,164				628,413				91,969
Property, plant and equipment, net			3,385,682				3,385,682				4,414,888				646,122
Goodwill and intangible assets, net			666,429				666,429				651,248				95,311
Total assets			11,068,683				11,067,796				12,604,111				1,844,621
Short-term bank borrowings, including current portion of long-term bank borrowings			2,044,200				2,044,200				2,601,915				380,792
Total current liabilities			2,829,419				2,829,419				3,814,215				558,213
Convertible senior notes			1,241,908				1,214,813				1,234,608				180,690
Senior secured convertible notes			—				—				65,517				9,584
Long-term bank borrowings, excluding current portion			662,956				662,956				1,172,432				171,586
Total liabilities			4,922,621				4,895,526				6,584,625				963,665
Minority interests			1,395,151				—				—				—
Ordinary Shares			9,922				9,922				9,958				1,457
Noncontrolling interests			—				1,395,151				1,373,046				200,946
Total shareholders’ equity			4,750,911				6,172,270				6,019,486				880,956

 

An investment in our ADSs involves significant risks. In addition to the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus, you should carefully consider the risks described below and in our annual report on Form 20-F for the fiscal year ended December 31, 2008 before you decide to buy our ADSs. If any of the following risks actually occurs, our business, prospects, financial condition and results of operations could be materially harmed, the trading price and value of our ADSs could decline and you could lose all or part of your investment.

 

Risks Related to This Offering

 

The market price for our ADSs has been and may continue to be volatile, which could cause the value of your investment to decline.

 

The market price for our ADSs has been and may continue to be highly volatile. Since our ADSs became listed on the NYSE on June 8, 2007, the closing prices of our ADSs have ranged from US$2.56 to US$41.40 per ADS, and the last reported trading price on June 12, 2009 was US$13.76 per ADS. The price of our ADSs may continue to fluctuate in response to factors including the following:

 

 

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs. A significant drop in the market price of our ADSs could lead holders of our ADSs to initiate securities class action lawsuits, whether they are warranted or not, which may cause the market price of our ADSs to decline further and cause us to incur substantial costs and could divert the time and attention of our management. As a result of these factors, among others, the value of your investment may decline, and you may be unable to resell your ADSs at or above the sale price.

Because the public offering price is substantially higher than our net tangible book value per ADS, you will incur immediate and substantial dilution.

 

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per share basis. As a result, you will experience immediate and substantial dilution of approximately US$8.44 per ADS (assuming no exercise by the underwriters of their over-allotment option), representing the difference between our net tangible book value per ADS as of March 31, 2009, after giving effect to this offering and the assumed public offering price of US$13.76 per ADS, based on the last trading price of our ADSs on June 12, 2009. See “Dilution.” In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options and upon conversion of our existing convertible notes.

 

Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.

 

Sales of our ADSs in the public market in the future, or the perception that these sales could occur, could cause the market price of our ADSs to decline. We currently have 129,989,700 ordinary shares outstanding, including 74,574,434 ordinary shares represented by ADSs. All ADSs sold in our initial public offering and the secondary offering are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. All of the remaining ordinary shares outstanding are, subject to the applicable requirements of Rule 144 under the Securities Act, available for sale. Under the terms of the note purchase agreement with Trustbridge Partners II, L.P., or Trustbridge, we have agreed to issue up to an aggregate amount of US$50 million of senior secured convertible notes due 2012 to Trustbridge or its affiliates. We will issue 11,466,574 ordinary shares to Trustbridge or its affiliates upon the conversion of our senior secured convertible notes, assuming the issuance of US$50 million of the senior secured convertible notes and all such notes are converted at the adjusted conversion rate of 22,933.1499 ordinary shares per $100,000 in principal amount of the senior secured convertible notes. In June 2009, we issued 2,000,000 ordinary shares to Trustbridge as a result of the conversion of approximately US$8.7 million of the senior secured convertible notes. In connection with a credit agreement between Yingli Capital and ADM Capital, we have issued 4,125,000 warrants to ADM Capital under the terms of a warrant agreement entered into in April 2009. Each warrant provides for the right to acquire one ordinary share at an initial strike price of US$5.64, which is based on the 20-trading day volume weighted average closing price per ADS on the New York Stock Exchange for the period prior to the issuance of the warrant, subject to customary anti-dilution and similar adjustments. We may at our discretion settle the warrants in cash, ordinary shares or a mix of cash and ordinary shares. All ordinary shares issued in connection with conversion of our senior secured convertible notes or the settlement in shares of any warrants granted to ADM Capital will be available for sale promptly after issuance, subject to compliance with applicable securities laws and rules.

 

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.

 

Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. As a holder of ADSs, you will not be treated as one of our shareholders and you will not have shareholder rights. Instead, the depositary will be treated as the holder of the shares underlying your ADSs. However, you may exercise some of the shareholders’ rights through the depositary, and you will have the right to withdraw the shares underlying your ADSs from the deposit facility.

 

Under our current articles of association, the minimum notice period required to convene a general meeting will be ten days. When a general meeting is convened, you may not receive

sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We plan to make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholder meeting.

 

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

 

Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless:

 

 

The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence our management. Holders of our ordinary shares are not subject to this discretionary proxy.

 

You may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

 

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts are made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material and adverse effect on the value of your ADSs.

You may be subject to limitations on transfers of your ADSs.

 

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

As a holder of our ADSs, your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

 

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act, or exempted from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, as a holder of our ADSs, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

 

In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such distribution.

 

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

 

Our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, shareholders of a Cayman Islands company may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a company incorporated in a jurisdiction in the United States. For example, contrary to the general practice in most corporations incorporated in the United States, Cayman Islands law does not require that shareholders approve sales of all or substantially all of a company’s assets. The limitations described above will also apply to the depositary who is treated as the holder of the shares underlying your ADSs.

 

You may have difficulty enforcing judgments obtained against us.

 

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

 

This prospectus supplement, the accompanying prospectus and documents incorporated by reference herein and therein contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements relate to our current expectations and views of future events. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors” in this prospectus supplement and those set forth under the heading “Item 3.D. Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” in our annual report on Form 20-F for the year ended December 31, 2008, which is incorporated by reference in the prospectus accompanying this prospectus supplement, all of which are difficult to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

 

In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan”, “believe”, “potential”, “continue”, “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

 

 

 

Our annual report on Form 20-F for the year ended December 31, 2008, which is incorporated by reference in the prospectus accompanying this prospectus supplement, also contains data related to the PV market worldwide and in China. These market data, including market data from Solarbuzz, an independent solar energy research and consulting firm, include projections that are based on a number of assumptions. The PV market may not grow at the rates projected by the market data, or at all. The failure of the PV market to grow at the projected rates may have a material adverse effect on our business and the value of our ADSs. In addition, the rapidly changing nature of the PV market subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements made in this prospectus supplement relate only to events or information as of the date on which the statements are made in this prospectus supplement. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus supplement completely and with the understanding that our actual future results may be materially different from what we expect.

 

We estimate that we will receive net proceeds from this offering of approximately US$163.1 million, or approximately US$193.8 million if the underwriters exercise their over-allotment option to purchase additional ADSs from us in full, after deducting fees, commissions and other estimated offering expenses payable by us and assuming a public offering price of US$13.76 per ADS, based on the last trading price of our ADSs on June 12, 2009. A US$1.00 increase (decrease) in the assumed public offering price of US$13.76 per ADS would increase (decrease) the net proceeds to us from this offering by US$12.0 million, after deducting the underwriting discount and estimated aggregate offering expenses payable by us and no other change to the number of ADSs offered by us as set forth on the cover page of this prospectus supplement.

 

We intend to use the net proceeds we receive from this offering for the following purposes:

 

 

The following table sets forth the amount, interest rate, maturity and the uses to which the proceeds of the loan facility provided by ADM Capital were put:

 

 

We have not yet finalized all of our anticipated expenditures and therefore cannot provide definitive estimates of the exact amounts to be used for some of the purposes discussed above. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. Accordingly, our management will have significant discretion in the allocation of the net proceeds we will receive from this offering. Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes.

 

Pending the use of our net proceeds, we intend to place the net proceeds in short-term bank deposits.

 

Since we are an offshore holding company, we may need to make capital contributions or loans to our PRC subsidiaries such that the net proceeds of the offering can be used in the manner described above. Such capital contributions and loans are subject to a number of limitations and approval processes under PRC laws and regulations. We cannot assure you that we can obtain the approvals from the relevant governmental authorities, or complete the registration and filing procedures required to use our net proceeds as described above, in each case on a timely basis, or at all.

 

We will not pay to any of our affiliates, other than our subsidiaries, any of the proceeds received by us from the issuance and sale of the ADSs.

 

We will not receive any of the proceeds from the sale of ADSs by the selling shareholder. However, an amount equal to US$30.0 million of the proceeds from the sale of ADSs by the

selling shareholder is expected to be used to repay a promissory note due to an affiliate of Trustbridge, and the proceeds of any such repayment will be used by Trustbridge to purchase an additional US$30.0 million of the second tranche of our senior secured convertible notes. See “Item 7.B. Major Shareholders and Related Party Transactions — Related Party Transactions — Cyber Power Acquisition and Issuance of Senior Secured Convertible Notes” in our annual report on Form 20-F for the fiscal year ended December 31, 2008, which is incorporated by reference in the prospectus accompanying this prospectus supplement, for additional information. We expect to use the proceeds from the issuance such second tranche of senior secured convertible notes for general corporate purposes.

 

The following table sets forth our capitalization as of March 31, 2009:

 

 

The as adjusted information below is illustrative only. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus supplement and the information under “Item 5. Operating and Financial Review and Prospects” in our annual report on Form 20-F for the fiscal year ended December 31, 2008 which is incorporated by reference in the prospectus accompanying this prospectus supplement. This table does not include our short-term borrowings (including the current portion of long-term bank borrowings), which were RMB 2,601.9 million (US$380.8 million) as of March 31, 2009.

 

 

 

 

In January 2009, Yingli China entered into a credit agreement with ADM Capital, which closed in April 2009, which provided Yingli China with a three-year loan facility of US$50.0 million. As of the date of this prospectus supplement, we had approximately RMB 341.1 million (US$50 million) outstanding under the loan facility.

Renminbi amounts in this “Capitalization” section have been translated into U.S. dollar amounts at the rate of RMB 6.8329 to US$1.00, the noon buying rate in New York for cable transfers of Renminbi per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of March 31, 2009. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized or settled into U.S. dollar amounts at such rate, or at any other rate.

 

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

 

Our net tangible book value as of March 31, 2009 was approximately RMB 3,995.2 million (US$584.7 million) or RMB 31.23 (US$4.57) per ordinary share and per ADS. Net tangible book value represents our total consolidated assets, minus the amount of our total consolidated intangible assets, total consolidated liabilities and minority interests. Our net tangible book value per share as of March 31, 2009 is calculated as our net tangible book value as of March 31, 2009, without taking into account any other changes in such net tangible book value after March 31, 2009 divided by the number of ordinary shares outstanding at March 31, 2009.

 

Without taking into account any other changes in such net tangible book value after March 31, 2009 except for the issuance and sale of ordinary shares in the form of ADSs offered by us in this offering, at the assumed public offering price of US$13.76 per ADS, based on the last trading price of our ADSs on June 12, 2009, and after deduction of underwriting discount and estimated aggregate offering expenses of this offering payable by us, our pro forma net tangible book value as of March 31, 2009 would have increased to US$747.8 million or US$5.32 per ordinary share and per ADS, assuming no exercise of the underwriters’ over-allotment option to purchase additional ADSs from us. This represents an immediate increase in net tangible book value of US$0.75 per ordinary share and per ADS to the existing shareholder and an immediate dilution in net tangible book value of US$8.44 per ordinary share and per ADS to investors purchasing ADSs in this offering.

 

The following table illustrates such per share dilution:

 

 

A US$1.00 increase (decrease) in the assumed public offering price of US$13.76 per ADS would increase (decrease) our pro forma net tangible book value after giving effect to this offering by US$0.09 per ordinary share and per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$0.91 per ordinary share and per ADS, assuming no exercise of the underwriters’ over-allotment option to purchase additional ADSs from us.

 

The following table summarizes, on a pro forma basis as of March 31, 2009, the differences between existing shareholders and the new investors with respect to the number of ordinary shares in the form of ADSs purchased from us, the total consideration paid and the average price per ordinary share and per ADS. In the case of the ordinary shares purchased by the new investors, the total consideration paid and amounts per share paid are before deducting underwriting discount and estimated aggregate offering expenses, assuming a public offering price of US$13.76 per ADS, based on the last trading price of our ADSs on

June 12, 2009, assuming no exercise of the underwriters’ over-allotment option to purchase additional ADSs from us.

 

 

The discussion and table above excludes unvested restricted shares and also assumes no exercise of any outstanding options under the 2006 stock incentive plan. As of the date of this prospectus supplement, we have granted 4,829,213 options and 2,621,060 restricted shares.

 

A US$1.00 increase (decrease) in the assumed public offering price of US$1.00 per ADS would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per ADS paid by all shareholders by US$12.0 million, US$12.0 million and US$0.08, respectively, assuming no exercise of the underwriter’s over-allotment option to purchase additional ADS from us.

 

The pro forma information in this section is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual public offering price of our ADSs.

 

Renminbi amounts in this “Dilution” section have been translated into U.S. dollar amounts at the rate of RMB 6.8329 to US$1.00, the noon buying rate in New York for cable transfers of Renminbi per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of March 31, 2009. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized or settled into U.S. dollar amounts at such rate, or at any other rate.

 

Our ADSs, each representing one of our ordinary shares, have been listed on the New York Stock Exchange since June 8, 2007 under the symbol “YGE.” The table below shows, for the periods indicated, the high and low closing prices on the New York Stock Exchange for our ADSs.

 

 

The closing price for our ADSs on the New York Stock Exchange on June 12, 2009 was US$13.76 per ADS.

 

Since its incorporation, Yingli Green Energy has never declared or paid any dividends, nor does it have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future.

 

Our board of directors has complete discretion on whether to pay dividends, subject, in certain cases, to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as if they were holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable under the deposit agreement. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

 

We are a Cayman Islands holding company and substantially all of our income, if any, will be derived from dividends we receive from our operating subsidiaries located in the PRC. PRC regulations currently permit payment of dividends only out of accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Neither the registered capital nor these reserves are distributable as cash dividends. In addition, at the discretion of their respective board of directors, Tianwei Yingli is required to allocate a portion of its after-tax profits to its reserve fund, enterprise development fund and employee bonus and welfare fund, and Yingli China is required to allocate a portion of its after-tax profits to its reserve fund and employee bonus and welfare fund. These reserve funds may not be distributed as cash dividends either. Further, if any of our PRC subsidiaries incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

 

Under the EIT Law and the implementation rules issued by the State Council, both of which became effective on January 1, 2008, dividends from our PRC subsidiaries to us may be subject to a withholding tax rate of 10%, unless we are deemed to be a PRC “resident enterprise.”

 

Moreover, the EIT Law (and its implementing regulations) and Income Tax Law for Individuals provide that an income tax rate of 20% or 10% will respectively be applicable to dividends payable to non-PRC investors who are individuals or considered as “non-resident enterprises” which have no establishment inside the PRC, or derive income not substantially connected with their establishments inside the PRC, to the extent such dividends are derived from sources within the PRC. We are a Cayman Islands holding company and substantially all of our income may be derived from dividends we receive from our operating subsidiaries located in the PRC. If we declare dividends on such income, it is unclear whether such dividends will be deemed to be derived from sources within the PRC under the EIT Law and its implementation rules, and be subject to the 10% income tax. See “Taxation—People’s Republic of China Taxation.”

 

This prospectus supplement contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of Renminbi into U.S. dollars in this prospectus supplement is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this prospectus supplement were made at a rate of RMB 6.8225 to US$1.00, the noon buying rate in effect as of December 31, 2008. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On June 12, 2009, the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board was RMB 6.8352 to US$1.00.

 

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

 

 

 

 

Effective January 1, 2009, as a result of the adoption of Statement of Financial Accounting Standards, No. 160.“Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” or SFAS No. 160, and FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement),” our condensed consolidated balance sheet as of December 31, 2008 and condensed consolidated statements of operations for the three months ended March 31, 2008 and December 31, 2008 have been re-casted for purposes of comparison. The following tables set forth previously reported condensed consolidated balance sheet information as of December 31, 2008, adjusted condensed consolidated balance sheet information as of December 31, 2008, condensed consolidated balance sheet information as of March 31, 2009, adjusted condensed consolidated statements of operations information for the three months ended March 31, 2008 and December 31, 2008 and condensed consolidated statement of operations information for the three months ended March 31, 2009. Certain Renminbi amounts in this “Recent Developments” section have been translated into U.S. dollar amounts at the rate of RMB 6.8329 to US$1.00, the noon buying rate in New York for cable transfers of Renminbi per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of March 31, 2009. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized or settled into U.S. dollar amounts at such rate, or at any other rate.

 

Results of Operations for the First Quarter of 2009

 

Total Net Revenues

 

Total net revenues were RMB 999.9 million (US$146.3 million) in the first quarter of 2009, a decrease of 43.2% from RMB 1,761.2 million in the fourth quarter of 2008 and a decrease of 37.3% from RMB 1,595.0 million in the first quarter of 2008. The decrease from the fourth quarter of 2008 was primarily due to substantial lower shipment volume and lower average selling price, which were impacted by weaker demand resulting from difficult macroeconomic conditions globally, including tighter credit for PV system project financing, worse than normal winter weather conditions in Germany which impacted PV system installations and changes in the feed-in tariff policy in Spain. Furthermore, as close to half of the Company’s PV module shipments were under contracts denominated in Euros, average selling price was also negatively impacted by the depreciation of the Euro against the Renminbi in the first quarter of 2009.

 

Gross Profit and Gross Margin

 

Gross profit in the first quarter of 2009 was RMB 152.5 million (US$22.3 million), a decrease of 34.5% from RMB 232.9 million in the fourth quarter of 2008 and a decrease of 61.1% from RMB 392.3 million in the first quarter of 2008. Gross margin was 15.3% in the first quarter of 2009, up from 13.2% in the fourth quarter of 2008 and down from 24.6% in the first quarter of 2008. The increase in gross margin from the fourth quarter of 2008 was primarily due to the decrease in unit cost of blended polysilicon in the first quarter of 2009 caused primarily by lower prices of polysilicon purchased in the spot market and under our long-term polysilicon supply contracts, as well as lower polysilicon usage per watt achieved through the Company’s continued research and development efforts, which was partially offset by the decline in average selling price resulting from weakened macroeconomic conditions and the depreciation of the Euro against the Renminbi.

 

Operating Expenses

 

Operating expenses in the first quarter of 2009 were RMB 132.1 million (US$19.3 million), compared to RMB 135.1 million in the fourth quarter of 2008 and RMB 109.6 million in the first quarter of 2008. The decrease in operating expenses compared to the fourth quarter of 2008 was primarily attributable to the better control of sales and marketing related expenses, partially offset by higher research and development expenses. Operating expenses as a percentage of total net revenues increased to 13.2% in the first quarter of 2009 from 7.7% in the fourth quarter of 2008 and 6.9% in the first quarter of 2008, mainly due to the decrease in total net revenues.

 

Operating Income and Margin

 

Operating income in the first quarter of 2009 was RMB 20.4 million (US$3.0 million), a decrease of 79.2% from RMB 97.8 million in the fourth quarter of 2008 and a decrease of 92.8% from RMB 282.7 million in the first quarter of 2008. Operating margin decreased to 2.0% in the first quarter of 2009 from 5.6% in the fourth quarter of 2008 and 17.7% in the first quarter of 2008.

 

Interest Expense

 

Interest expense was RMB 79.0 million (US$11.6 million) in the first quarter of 2009, compared to RMB 51.7 million in the fourth quarter of 2008 and RMB 37.7 million in the first quarter of 2008. The increase in interest expense was consistent with both the increase in long-term bank borrowings from RMB 663.0 million as of December 31, 2008 to RMB 1,172.4 million (US$171.6 million) as of March 31, 2009 and the increase in short-term borrowings from RMB 2,044.2 million as of December 31, 2008 to RMB 2,601.9 million (US$380.8 million) as of

March 31, 2009. The weighted average interest rate for these borrowings in the first quarter of 2009 was 7.97%, which increased from 7.68% in the fourth quarter of 2008.

 

Foreign Currency Exchange Loss (Gain)

 

Foreign currency exchange loss was RMB 93.6 million (US$13.7 million) in the first quarter of 2009, compared to a foreign currency exchange gain of RMB 68.7 million in the fourth quarter of 2008 and a foreign currency exchange gain of RMB 66.3 million in the first quarter of 2008. The Euro depreciated approximately 6.5% against the Renminbi in the first quarter of 2009, compared to an approximately 3.4% depreciation of Euro against the Renminbi in the fourth quarter of 2008, which resulted in a loss upon the revaluation of accounts receivables and raw material prepayments denominated in Euro at the end of the quarter. The foreign currency exchange gain in the fourth quarter of 2008 despite the Euro depreciation was primarily due to a substantial gain of RMB 106.9 million resulting from foreign currency forward contracts that was realized in the fourth quarter 2008.

 

Other Income (Expense)

 

Other expense was RMB 23.1 million (US$3.4 million) in the first quarter of 2009, compared to other income of RMB 0.4 million in the fourth quarter of 2008 and RMB 2.0 million in the first quarter of 2008. The other expense in the first quarter of 2009 was primarily the result of the change in the fair value of the embedded derivative liability related to the issuance of US$20.0 million of guaranteed senior secured convertible notes issued in January 2009. Such interest expense and derivative liability are non-cash charges and will not impact our cash flow.

 

Income Tax Benefit

 

Income tax benefit was RMB 13.0 million (US$1.9 million) in the first quarter of 2009, compared to RMB 3.1 million in the fourth quarter of 2008 and RMB 0.7 million in the first quarter of 2008. The income tax benefit in the first quarter of 2009 was primarily the result of a deferred tax benefit recognized in connection with the net operating losses incurred in the quarter, while the income tax benefit in the fourth quarter of 2008 was primarily due to an increase of deferred tax assets related to accrued warranty. Under the Enterprise Income Tax Law and the various implementation rules, Tianwei Yingli was subject to an enterprise income tax rate of 0% in 2008 and 12.5% for 2009.

 

Noncontrolling Interests

 

Since our adoption of SFAS No. 160 starting from January 1, 2009, the equity interests in our various subsidiaries not held by us are accounted for as noncontrolling interests. Noncontrolling interests we reported primarily consisted of equity interest held by Tianwei Baobian Electric Co., Ltd., or Tianwei Baobian, in Tianwei Yingli. Losses attributable to noncontrolling interests in the first quarter of 2009 were RMB 19.5 million (US$2.9 million), primarily as a result of the losses attributable to the 25.99% ownership interest held by Tianwei Baobian in Tianwei Yingli, compared to earnings attributable to noncontrolling interests in amounts of RMB 99.0 million and RMB 40.0 million in the first quarter and the fourth quarter of 2008, respectively, which were primarily due to the earnings attributable to the 25.99% ownership interest held by Tianwei Baobian in Tianwei Yingli during these periods.

 

Net Income (Loss)

 

As a result of the factors discussed above, net loss was RMB 141.6 million (US$20.7 million) in the first quarter of 2009, compared to net income of RMB 82.0 million in the fourth quarter of 2008 and net income of RMB 220.2 million in the first quarter of 2008. Diluted loss per ordinary

share and per ADS was RMB 1.11 (US$0.16) in the first quarter of 2009, compared to diluted earnings per ordinary share and per ADS of RMB 0.64 in the fourth quarter of 2008.

 

Balance Sheet Analysis

 

As of March 31, 2009, we had RMB 1,059.7 million (US$155.1 million) in cash and RMB 2,780.4 million (US$406.9 million) in working capital, compared to RMB 1,108.9 million in cash and RMB 3,231.7 million in working capital as of December 31, 2008. Prepayment to suppliers decreased from RMB 774.0 million as of December 31, 2008 to RMB 453.1 million (US$66.3 million) as of March 31, 2009 as a result of utilization of prepayments in the previous quarter and favorable changes to the payment schedules for polysilicon procurement. Long-term bank borrowings increased to RMB 1,172.4 million (US$171.6 million) as of March 31, 2009 from RMB 663.0 million as of December 31, 2008 and short-term borrowings increased to RMB 2,601.9 million (US$380.8 million) as of March 31, 2009 from RMB 2,044.2 million as of December 31, 2008. As of the date of this prospectus supplement, we had approximately RMB 6,405 million in authorized lines of credit, of which RMB 4,683 million had been utilized.

 

Senior Secured Convertible Notes due 2012 Issued to Trustbridge

 

We entered into a note purchase agreement with Trustbridge Partnership II, L.P., an affiliate of Gold Sight International Limited, the former minority shareholder of Cyber Power Group Limited, or Cyber Power, for up to US$50.0 million in senior convertible notes due 2012, or the notes, US$20.0 million of which has been issued, to fund the acquisition of Cyber Power. In January 2009, we issued the first tranche of the notes in the principal amount of US$20.0 million. In the first quarter of 2009, the conversion feature was accounted for as a derivative liability and bifurcated from the notes as a debt discount. The debt discount is amortized over the term of the notes as interest expenses. The derivative liability was subject to fair value accounting with the charges in fair value recognized in our results for the relevant period. Such interest expense and derivative liability are non-cash charges and will not impact our cash flow. If the conversion price of the notes remains substantially below the market price at the time of the issuance of the remaining notes, we will be required to account for the difference as an interest expense, which could be significant and would have a material adverse effect on our results of operations for the relevant period. In addition, we will be required to account for any derivative liability gain or loss relating to the outstanding notes, which would also have a material effect on our results of operations for the relevant period. In June 2009, we issued 2,000,000 ordinary shares to Trustbridge as a result of the conversion of approximately US$8.7 million of the senior secured convertible notes. As of the date of this prospectus supplement, approximately US$11.3 million of the notes were outstanding.

 

ADM Capital Credit Facility and Warrants

 

In January 2009, Yingli China entered into a credit agreement with ADM Capital, which closed in April 2009. Under the terms of the credit agreement, ADM Capital provided Yingli China with a three-year loan facility in the principal amount of US$50.0 million for its production capacity expansion and general corporate purposes. In connection with the closing of the credit agreement, we entered into a warrant agreement whereby we issued to ADM Capital 4,125,000 freestanding warrants. The value of the warrants is separated from the loan as a discount. The loan discount will be amortized over the term of the loan expected to be outstanding as a non-cash interest expense, which will not impact our cash flow. We intend to repay the loan using a portion of proceeds we will receive from this offering. As a result of the repayment of the loan, the difference between the carrying amount of the loan and the principal amount we repay will be recognized as a loss, which will be significant and will have a material adverse effect on our results of operations. Even after the repayment of the loan, the freestanding warrants will remain outstanding until exercised or purchased by us.

Business Update

 

Since the beginning of April, 2009, we have experienced a substantial increase in demand for our products and expect to see at least a 70% increase in PV module shipments in the second quarter of 2009 over our PV module shipments in the first quarter of 2009. In addition, after taking into consideration the continuous decline in blended polysilicon cost and non-polysilicon cost, partially offset by the adverse effect of the expected decreases in the average selling price of PV modules, we currently expect that our gross margin target for the second quarter of 2009 to be in the estimated range of 18% to 20%.

 

The above targets and estimates are based upon our current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond our control. Our actual results and performance may be materially different from such targets and estimates. For additional information regarding the various risks and uncertainties inherent in such targets and estimates, see “Item 3.D. Risk Factors — Risk Related to Us and PV Industry” in our annual report on Form 20-F for the year ended December 31, 2008, which is incorporated by reference in the prospectus accompanying this prospectus supplement.

 

Cayman Islands Taxation

 

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

We have, pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, obtained an undertaking from the Governor-in-Council that:

 

(a) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income or gains or appreciations shall apply to us or our operations;

 

(b) the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our ordinary shares, debentures or other obligations.

 

The undertaking that we have obtained is for a period of 20 years from August 15, 2006.

 

People’s Republic of China Taxation

 

Under the “Enterprise Income Tax Law of the PRC,” or the EIT Law, which took effect as of January 1, 2008, enterprises established under the laws of non-PRC jurisdictions but whose “de facto management bodies” are located in the PRC are considered “resident enterprises” for PRC tax purposes and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation rules for the EIT Law, a “de facto management body” is defined as a body that has substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties and other factors of an enterprise. On April 22, 2009, the State Administration of Taxation promulgated a circular which sets out criteria for determining whether “de facto management bodies” are located in China for overseas incorporated, domestically controlled enterprises. However, as this circular only applies to enterprises incorporated under laws of foreign countries or regions that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are controlled by individual PRC residents like us. Therefore, although substantially all of our management is currently located in the PRC, it is unclear whether Chinese tax authorities would require (or permit) our overseas registered entities to be treated as PRC resident enterprises. If the Chinese tax authorities determine that Yingli Green Energy and Yingli International are PRC resident enterprises, we may be subject to the enterprise income tax at the rate of 25% as to our global income.

 

Moreover, the implementation rules for the EIT Law provide that an income tax rate of 10% is normally applicable to dividends payable to non-PRC investors who are “non-resident enterprises” to the extent such dividends are derived from sources within the PRC. Furthermore, a circular issued by the Ministry of Finance and the State Administration of Taxation on February 22, 2008 stipulates that undistributed earnings generated prior to January 1, 2008 are exempt from enterprise income tax. We are a Cayman Islands holding company and Yingli International is a British Virgin Islands intermediate holding company. Substantially all of our income may be derived from dividends we receive from our operating subsidiaries located in the PRC. Thus, dividends for earnings accumulated beginning on January 1, 2008 payable to us by our subsidiaries in China, if any, will be subject to the 10% income tax if we are considered as “non-resident enterprises” under the EIT Law.

Under the existing implementation rules of the EIT Law, it is unclear what will constitute income derived from sources within the PRC and therefore dividends paid by us to our non-PRC resident ADS holders and ordinary shareholders may be deemed to be derived from sources within the PRC and therefore be subject to the 10% PRC income tax. Similarly, any gain realized on the transfer of our ADSs or ordinary shares by our non-PRC resident ADS holders may also be subject to the 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.

 

United States Federal Income Tax Consequences

 

The following summary describes the material United States federal income tax consequences to U.S. Holders (defined below) of the purchase, ownership and sale of our ordinary shares or ADSs as of the date hereof.

 

Except where noted, this summary deals only with ordinary shares and ADSs held as capital assets. As used herein, the term “U.S. Holder” means a beneficial owner of an ordinary share or ADS that is for United States federal income tax purposes:

 

 

This summary does not represent a detailed description of all of the United States federal income tax consequences which may be applicable to you in light of your particular circumstances or if you are subject to special treatment under the United States federal income tax laws, including if you are:

 

 

 

If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ordinary shares or ADSs, you should consult your tax advisors.

 

The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

 

This summary does not address the effects of any state, local or non-United States tax laws. If you are considering the purchase, ownership or disposition of our ordinary shares or ADSs, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

 

The United States Treasury has expressed concerns that parties to whom depositary shares are pre-released or intermediaries in the chain of ownership between the holder of a depositary share and the issuer of the security underlying the depositary share may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received on depositary shares by certain non-corporate U.S. Holders. Accordingly, the analysis of the creditability of PRC taxes, if any, and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by parties to whom ADSs are pre-released or intermediaries in the chain of ownership between the holder of an ADS and our company.

 

If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax.

 

The following discussion assumes that we are not, and will not become a passive foreign investment company, or PFIC, for U.S. federal income tax purposes as discussed below.

 

Distributions on ADSs or Ordinary Shares

 

The gross amount of distributions on the ADSs or ordinary shares (including amounts withheld to reflect any PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of the ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

 

With respect to certain non-corporate U.S. Holders, certain dividends received in taxable years beginning before January 1, 2011 from a qualified foreign corporation may be subject to

reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that depositary shares such as our ADSs (which are listed on the New York Stock Exchange), but not our ordinary shares, are treated as readily tradable on an established securities market in the United States for these purposes. Thus, while we believe that our ADSs currently should be considered readily tradeable for these purposes, we do not believe that dividends that we pay on our ordinary shares that are not backed by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we are deemed to be a PRC “resident enterprise” under PRC tax law (see “Taxation—People’s Republic of China Taxation”), we may be eligible for the benefits of the income tax treaty between the United States and the PRC, and if we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by ADSs, may be eligible for the reduced rates of taxation. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.

 

Non-corporate U.S. Holders will not be eligible for the reduced rates of taxation applicable to any dividends received from us in taxable years beginning prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

 

Under the PRC tax law, if the dividends paid by us are deemed to be derived from sources within the PRC, you may be subject to PRC withholding taxes on dividends paid to you with respect to the ADSs or ordinary shares. Subject to certain conditions and limitations, PRC withholding taxes on dividends, if any, will be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the foreign tax credit are complex. You should consult your own tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

 

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or ordinary shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ADSs or ordinary shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

Sale, Exchange or Other Disposition of ADSs or Ordinary Shares

 

You will recognize taxable gain or loss on any sale or exchange of ADSs or ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary shares and your tax basis in the ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss. However, in the event that we are deemed to be a PRC “resident enterprise” under PRC tax law (see “Taxation—People’s Republic of China Taxation”), we may also be treated as a PRC tax resident for purposes of the income tax treaty between the United States and the PRC. Under this treaty, if any PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares, the gain may be treated as PRC-source income.

 

You are urged to consult your tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of ADSs or ordinary shares, including the availability of the foreign tax credit under your particular circumstances.

 

Passive Foreign Investment Company

 

We do not expect to be a PFIC for our current taxable year and, based on the manner in which we currently operate our business, we do not expect to become one in the future, although there can be no assurance in this regard. If, however, we are or become a PFIC, you could be subject to additional U.S. federal income taxes on gain recognized with respect to the ADSs or ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding ADSs or ordinary shares if we are considered a PFIC in any taxable year.

 

Information Reporting and Backup Withholding

 

In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale, exchange or redemption of our ADSs or ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. Backup withholding may apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the Internal Revenue Service.

 

The following table sets forth information with respect to the beneficial ownership of our ordinary shares, as of June 12, 2009, the most recent practicable date, by: