Vestas Wind Systems A/S, the world’s largest wind turbine maker, is considering selling shares to existing investors if talks on a strategic cooperation with Mitsubishi Heavy Industries Ltd. fail, said two people with knowledge of the matter.
A rights offering may raise about 500 million euros ($646 million) for the Aarhus, Denmark-based company, said the people, who asked not to be identified because the deliberations are private. A decision to sell shares is one of the options being considered and will depend on the outcome of negotiations with Mitsubishi, the people said. Jens Velling, a spokesman for Vestas, declined to comment.
Vestas, which has been hurt by higher-than-expected costs to develop its V112 turbine and lower government subsidies for clean energy, said in July that its banks deferred testing financial covenants.
This enabled the company to draw on credit lines as its cash flow deteriorated. The company has credit lines totaling 1.3 billion euros with banks including Commerzbank AG, UniCredit SpA, Nordea Bank AB, SEB AB, DNB ASA and HSBC Holdings Plc.
“If they raise equity, they should do a big one in order to get the balance sheet concerns out of the way,” Andreas Willi, an analyst at JPMorgan Chase & Co said in a phone interview. “If they deliver on their free cash flow promise of 1 billion euros for the fourth quarter, then a 500 million rights issue may be enough.”
On Aug. 27, Vestas said it was in talks with Mitsubishi Heavy on a possible “strategic cooperation,” without elaborating. Patrik Setterberg, an analyst at Nordea, said a collaboration on offshore wind turbines was probably a subject of discussions, with other possibilities including Mitsubishi taking a minority stake in Vestas, or creating a joint venture with the Danish company.
Vestas shares fell 13.4 percent today, the biggest one-day decline in seven months. The shares rose 38 percent between Aug. 27 and Sept. 10, before they dropped by about 26 percent in the past three days.
Martin Prozesky, an analyst at Sanford C. Bernstein & Co., said in a note yesterday that a minority strategic investment from a company such as Mitsubishi was unlikely.
Given investment protection issues, restructuring requirements and weak competition for Vestas assets, “we do not see the case for a minority stake purchase,” he wrote in the note to clients yesterday.
Vestas announced two rounds of job cuts this year totaling more than 3,700 employees, or a sixth of its workforce. The turbinemaker is in the middle of a restructuring program that seeks to lower fixed costs by more than 250 million euros.