REC Falls as Weak Cash Flow Fuels Share Sale Concern: Oslo Mover

Renewable Energy Corp ASA, the solar maker grappling with excess capacity, dropped the most in almost three months in Oslo as weaker-than-expected cash flow and slower cost cuts increased the chance of a dilutive share sale.

REC, based in Sandvika near Oslo, declined as much as 15 percent, the most since Nov. 15, and was down 8.8 percent at 0.938 kroner as of 12:50 p.m. local time. More than 47 million shares have been traded so far, about 40 percent more than the three-month average daily volume.

The company is failing to “reduce cash costs in line with its target,” Eirik Vegem Dahle, an analyst at Pareto Securities AS, wrote in an e-mail. REC’s fourth-quarter cash flow was about 100 million kroner ($18.1 million) less than expected, increasing the likelihood of an equity issue, he wrote.

REC, like European peers Solarworld AG and Q-Cells SE, is under pressure from Chinese competitors that expanded capacity just as demand slowed, causing solar-wafer and cell prices to plummet. Cuts in renewable-energy subsidies in France, Italy and Germany have also reduced sales for manufacturers.

REC is in talks with its banks about changes to covenants on a 2 billion-krone credit line maturing in April 2014, Chief Financial Officer Kjell Christian Bjoernsen said in Oslo today. REC also needs to refinance a 320 million-euro convertible bond and a 650 million-krone fixed-rate note next year.

Chief Executive Officer Ole Enger is “quite optimistic” the company will be able to refinance its debt, he said in a presentation. He declined to give more detail in an interview.

Cut-Off Point

REC is predicted to report first-half earnings before interest, tax, depreciation and amortization that will miss the 300 million kroner cut-off point set by its banks, according to analyst estimates compiled by Bloomberg. Ebitda will reach less than a tenth of that level at 27 million kroner in the first- quarter, according to the average of five estimates, and 110.5 million kroner in the second-quarter, according to the mean of three estimates.

REC has sought to bolster its balance sheet by curbing costs, cutting jobs and reducing capacity. It also raised 1.3 billion kroner through a share sale last year. That’s helped it cut its net debt to 1.8 billion kroner in the fourth quarter from 7.9 billion kroner two years earlier.

The polysilicon maker reported a fourth-quarter loss before interest taxes, depreciation and amortization of 34 million kroner, narrowing from a 216 million-krone loss a year earlier, REC said in a statement today. Sales fell 26 percent to 1.69 billion kroner in the quarter, it said.

The cash cost of producing granular polysilicon was $12.5 a kilogram (2.2 pounds) during the three months, more than its $11.5 target, REC said. The total cost of producing a solar panel at REC’s Singapore factory was 0.58 euros ($0.78) a watt, in line with its target.

Polysilicon prices will have to return to a level “well above” $20 a kilogram before REC restarts production of Siemens-based solar grade silicon production at its Moses Lake plant in the U.S., Enger said in an interview. It halted capacity of 2,400 metric tons at the factory in January.

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

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

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