Bloomberg News

Gamesa Shorts Reach Highest Since June 2009 on China Rivals

March 27, 2012

Hedge fund managers such as Steven A. Cohen raised short positions in Spanish wind-turbine maker Gamesa Corp. Technologica SA to the highest since June 2009 as Chinese producers increased competition for sales.

Investors had sold short 11 percent of Gamesa’s outstanding shares by March 23, the most recent figures available, information from Data Explorers published on Bloomberg show. Cohen’s SAC Capital has shorted 1.2 percent, second only to Egerton Capital LP’s 1.4 percent position, regulatory filings from February show.

The bearish positions climbed from a low in December 2009, as Gamesa unveiled plans the next year to spend more than an annual 200 million euros ($267 million) through 2013 developing an offshore turbine. At the same time, nations cut subsidies for clean power. The shorts grew even as Gamesa sold U.S. wind farms for almost $900 million, buoying its stock from a record.

“No one really wants to buy it because the global industry probably has overcapacity of about 45 percent,” said Shai Hill, an analyst at Macquarie Group Ltd. in London who has an “underperform” recommendation on the stock.

The shares fell after the data was published and traded 1.4 percent lower at 2.48 euros at 2:11 p.m. Madrid time. The stock has lost about 64 percent over the past year.

Gamesa plans to cut maintenance time with its new turbines, allowing clients to produce power 20 percent more cheaply.

“Cash flow is the source of concern,” Maurice Rosenthal, a renewable energy analyst at ING Groep NV in Brussels, said by phone. “Offshore investments are consuming a lot of cash, and there is little room for further cash burn going forwards.”

No Financing Risk

Project loans linked to wind-park developments have added to Gamesa’s debt, Chief Financial Officer Juan Ramon Inarritu said in an e-mailed response to questions. The company renewed a 1.2 billion-euro credit line last year that increased its total borrowing capacity to more than 2.2 billion euros, he said, indicating the company has enough cash to fund its research.

“There is no financing risk in the Gamesa business plan,” he said. “In 2012 Gamesa will prioritize financial solidity and profitability over sales volume and will bring forward by one year the objective of reaching equilibrium in free cash flow,” or the money coming into the business equaling that leaving.

Gamesa used 326 million euros in cash last year as clients delayed payments and inventories piled up, leaving 1.1 billion euros of turbine equipment in its warehouses, 272 million euros more than at the end of 2010, according to data compiled by Bloomberg. Net debt rose to 617 million euros in 2011, from a positive net 216 million euros a year earlier, the data showed.

Consolidation Seen

The company gained four places to become the fourth-biggest wind turbine maker, raising its market share by 1.6 percentage points to 8.2 percent last year, according to BTM Consult.

“The industry at some point will go through some kind of consolidation,” Gamesa Chairman Jorge Calvet said Feb. 23. “The point is, when it will start and who will do it?” Calvet cut his 2012 sales forecast as Chinese rivals push prices lower.

Egerton Capital, SAC and Highbridge Capital Management, which sold short 1 percent of the stock, all increased their bets against the company in filings published after Calvet cut the outlook. Total short sales, which involve selling borrowed stock with the aim of buying it back at a lower price, made up 8.5 percent of Gamesa’s shares Feb. 22 before Calvet’s forecast.

More than three-quarters of the supply of stock that can be borrowed is already out on loan, meaning it would be difficult for investors to acquire more of the Zamudio, Spain-based company’s shares to sell short, according Data Explorers.

The company sold parks in Iowa, Pennsylvania, Texas and Illinois to Algonquin Power & Utilities this month for almost $900 million. The transaction added 26.5 million euros of profit before interest and tax, according to the company.

SAC’s Cohen averaged 30 percent annual returns for 18 years before losing 19 percent in 2008 as financial markets slumped. Jonathan Gasthalter, a spokesman for SAC, declined to comment.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.ne.


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