Vestas Tumbles on Report of Debt Restructuring Talks

Vestas Falls on Report of Debt Restructuring Talk With HSBC, RBS
Vestas along with rivals General Electric Co. and Siemens AG is struggling with declining turbine prices, excess production capacity and from the U.S. to Germany to rein in support for renewable energy. Photographer: Ken James/Bloomberg

Vestas Wind Systems A/S fell the most in four weeks after a report that the turbine maker is in talks with two banks about restructuring debts after drawing a 300 million-euro ($379 million) credit line.

The shares tumbled 8.1 percent in Copenhagen after the Sunday Times reported that Royal Bank of Scotland Group Plc and HSBC Holdings Plc demanded Vestas submit a comprehensive financial plan from Vestas. The British newspaper said Vestas hired PwC and the banks appointed Ernst & Young LLP to advise on the plan.

Vestas along with rivals General Electric Co. and Siemens AG is struggling with declining turbine prices and excess capacity as nations from the U.S. to Germany rein in support for renewable energy. The company detailed restructuring plans in January after issuing a second profit warning in three months. It shelved a U.K. offshore-turbine factory venture and closed a plant in China to save cash last month.

“The company is clearly in severe distress,” Martin Prozesky, an analyst at Sanford C. Bernstein & Co., said.

“The restructuring they’ve announced so far is very insufficient relative to the challenges they are facing. Unless they restructure much more radically, they could run into a liquidity problem,” he said today by phone.

Mikkel Friis-Thomsen, a Vestas spokesman, declined to discuss details of the report, saying by phone today: “We never comment on speculation.” Vestas shares closed at 29.79 kroner, the lowest since June 27 and biggest drop in a month.

Cash Need

Vestas has debt of almost 1.2 billion euros, according to Bloomberg data. The company’s thirst for cash may reflect a need for working capital required for building more turbines as it delivers large orders as well as cash for restructuring, Prozesky said.

“I wouldn’t be surprised if they are making an operating loss, and therefore if working capital also requires funding they clearly need financing,” he said. The company could cut its “disproportionately costly” research and development staff and shrink its operations in the U.S., where a wind energy tax credit ends this year, he said.

Bernstein estimates 300 million to 400 million euros is the likely charge for the necessary restructuring, Prozesky said.

Wind turbine developers are having trouble raising funds to finance projects from banks that traditionally underwrite the biggest projects, Heinz Steffen, an analyst at Fairesearch GmbH & Co, said today by phone from Kronberg.

‘Doing Badly’

“The whole industry is doing badly,” he said. Banks are no longer willing to finance large projects constrained by their own financial issues while delays in grid connection and legal reasons in promising offshore wind markets inhibit growth, he said. “Also, the market is in overcapacity and there is price pressure from China.”

Officials at HSBC, RBS, PwC and Ernst & Young had no immediate comment on the Sunday Times report. The Bloomberg Wind Energy Index of 64 companies, which rose 3.3 percent on June 29, slipped 0.2 percent today.

Bid Speculation

Chinese competitors Sinovel Wind Group Co. and Xinjiang Goldwind Science & Technology Co. have considered a bid for Vestas, the Danish newspaper Jyllands-Posten reported in April. While Vestas CEO Ditlev Engel declined to comment on that report at the time, analysts said a bid is unlikely.

“If you look at the other turbine producers like Siemens or GE, I don’t see them buying Vestas,” said Janne Vincent Kjaer, an analyst at Jyske Bank A/S. “They have already the proven technology and they’re also fighting with overcapacity themselves.”

Prozesky said a potential acquirer was more likely to include Korean groups such as Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. Chinese, European and U.S. companies, facing their own domestic issues, are unlikely to be buyers, he said.

Vestas small shareholders are forming an association to attempt to consolidate their votes and increase influence, the Danish newswire Ritzau Finans said, without saying how it got the information.

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