Bloomberg News

REC Slides as Citi Warns Spin Off Plan Faces Hurdles: Oslo Mover

July 23, 2013

Renewable Energy Corp ASA (REC), the Norwegian polysilicon maker, declined in Oslo as Citigroup Inc. said the group’s plan to spin off its wafer, cell and solar panel unit is unlikely to get the bondholder support it needs.

Shares in REC, based in Sandvika near Oslo, fell as much as 2.8 percent to 2.95 kroner, and traded 2.4 percent lower as of 12:15 p.m. in the Norwegian capital. That makes REC the second-biggest loser on the OSEBX index of 54 most-traded stocks.

REC, which has been battling falling prices amid industry overcapacity, said on July 18 that it plans to spin off its solar unit in a deal that values the business at 800 million kroner ($135 million). By separating its solar and silicon units into separate companies, REC plans to make it easier for the businesses to attract funds and improve profitability, it said.

With China planning to introduce tariffs on polysilicon imports to protect domestic producers, it’s unlikely that REC bondholders will be willing to spin off the solar unit, Citi analysts Jason Channell and Phuc Nguyen said in a note today.

To support the sale would leave the parent group “with a potentially unprofitable poly business” that may be unable to repay debtors, they wrote. “Since consent from bondholders is a requirement for the spin-off to go ahead, we consider the chances of this occurring are dramatically reduced.”

China, the world’s biggest solar-module maker, plans to impose tariffs of as much as 57 percent on polysilicon shipped from the U.S. and South Korea, saying it wants to stop the product from being sold below cost.

Price Plunge

The U.S. units of REC are among companies to receive the highest rate of tariff, due to come into effect from July 24.

The decision, announced after REC reported its second quarter results on July 18, marks the preliminary ruling of a probe opened last year. The investigation is a response to a U.S. decision in 2012 to impose tariffs of as much as 250 percent on Chinese solar panels after a plunge in prices led to the bankruptcy of manufacturers such as Solyndra LLC, which was based in Fremont, California.

The introduction of import tariffs by China may make it more difficult for REC to refinance debt due next year, Citi’s Channell and Nguyen wrote. That isn’t yet fully reflected in REC’s share price, which has “only retreated to its pre-results level,” they said. The investment bank downgraded its rating on REC to sell from neutral, it said.

To contact the reporter on this story: Stephen Treloar in Oslo on at streloar1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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