Loss-making solar equipment maker Renewable Energy Corporation will split in two, raise cash and move out of Norway, hoping that its beefed up halves, relocated into the center of growth markets, can ride out the storm.
REC said it would sell off its solar panel division to existing shareholders, move it to Singapore with no debt and ample cash, and recapitalize its silicon unit so it can manage its debt before it moved to the United States.
The deal, pending approval by shareholders and bond owners, would quickly make both new entities takeover targets as the solar arm would have no debt while the silicon arm would have the cash to service debt for several years to come.
The solar equipment industry has been in the doldrums for years as Europe's economic woes, falling government subsidies and Chinese overcapacity have dragged prices down, while a trade dispute between China, the United States and the European Union has made uncertainty almost permanent.
That dispute flared again just hours after REC announced its split, with China issuing preliminary anti-dumping duties on imports of U.S. and South Korean solar-grade polysilicon. The move would sharply hit REC's sales from its U.S. operations.
REC shares, once the darling of the Oslo bourse but down 98 percent since its 2008 peak, surged as much as 25 percent on the split plan, but gave back the bulk of that gain when China unveiled the new trade barrier.
"By separating these two companies into two very well financed companies, we think we are positioning ... for organic growth as well as the possible consolidation and restructuring of the industry," Chief Executive Ole Enger said on Thursday.
"Overall, the solar industry is still very fragmented, it's poorly financed and certainly ripe for consolidation."
REC has already closed its expensive Norwegian manufacturing base, moving production to Singapore and the United States, regions that will generate the vast majority of the market's growth in the coming years.
The struggling firm, which made a net loss of 447 million crowns in the second quarter versus expectations of a 297 million crown loss, last year had to raise cash and take out a new bank loan when bondholders rejected a restructuring plan.
CLOSER TO CUSTOMERS
With the sale of the solar business, underwritten by its biggest shareholders, REC will raise 800 million crowns, retaining 500 million and providing the solar arm with 300 million crowns in net cash.
The deal would leave existing shareholders with a stake in two separate entities that would be listed in Oslo but headquartered elsewhere.
The split would raise the solar arm's cash to 2.1 billion crowns, above the 1.9 billion needed to pay off its 2014 bond and convertible bond next year, putting it in the clear until 2016.
REC's silicon division produces a variety of ingredients for solar panels, semi-conductors and optical devices.
"We see a continued positive demand development mainly driven by Japan, China and the United States," Enger said. "Even more importantly, we also see an increased demand in almost every country in Asia, as well as Africa and South America."
HSBC expects global solar installations to rise by 18 percent this year as Japan and China more than offset a 30 percent fall in Europe. For 2014, it expects global growth at 7 percent, accelerating to 11 percent in 2015.
"This is a very good solution," Eirik Dahle, an equity analyst at Pareto Securities said. "The two units don't really have much to do with each other and now they'll be able to concentrate on their individual businesses."
"Most importantly, this will make Silicon a more attractive takeover candidate, as a buyer would not need to later divest Solar," he added in a note.
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