Vestas Cash Flow Raises Chance of Share Sale, Bernstein, SEB Say

Vestas Cash Flow Raises Chance of Share Sale, Bernstein, SEB Say
Vestas Wind Systems A/S signage is displayed on a tarp at the Sacramento Municipal Utility District (SMUD) Wind Power Plant in Rio Vista, California. Photographer: Ken James/Bloomberg

Vestas Wind Systems A/S’s struggle to generate cash increases prospects the biggest wind turbine maker will sell shares to shore up its finances, according to analysts at Sanford C. Bernstein Ltd., Sydbank A/S and SEB AB.

Vestas on Nov. 7 retreated from forecasting positive cash flow this year, after 775 million euros ($986 million) left the business through September. It sees an inflow of 275 million to 775 million euros in the last quarter, compared with a billion-euro forecast by Chief Financial Officer Dag Andresen Aug. 22.

“The cash flow guidance is a mess,” Daniel Patterson, an SEB analyst in Copenhagen, said by phone. “It raises the risk of a rights issue and also means the potential rights issue, if you have one, is going to be bigger than people feared.” About 500 million euros will help to “create some working space.”

Vestas has lost more than half its value in Copenhagen this year as it struggles to return to profit, with overcapacity in the industry squeezing margins. The company posted orders in the third quarter of 401 megawatts, a result that Bernstein said was the worst in seven years. Vestas has also been discussing a “strategic cooperation” with Mitsubishi Heavy Industries Ltd.

Andresen said in an interview on Nov. 7, the day of the earnings, that he wouldn’t rule out a rights offer and Vestas would meet its end-of-year loan covenants. The company already stated on July 31 that creditors had waived tests to determine whether the company would breach its commitments. It declined on Nov. 16 to add to Andresen’s comments on rights offers.

Paying Suppliers

Vestas is also seeking a single shareholder to take a stake of as much as 20 percent, Andresen said on Nov. 7, affirming an earlier statement by Chairman Bert Nordberg. Vestas shares have fallen since, reaching the lowest since October 1998 on Nov. 15.

“There’s a need to pay their suppliers over the next six months, and the order inflow situation doesn’t look very good,” Martin Prozesky, a Bernstein analyst, said by phone. “For this business to ultimately be sustainable, you structurally need to recapitalize.” Vestas needs a rights offer in the next half-year, said Prozesky, who gives the stock an underperform rating.

The company needs cash to fund restructuring that Andresen says seeks to slash 250 million euros from annual fixed costs by the year-end, rising to 400 million euros by the end of 2013.

Vestas is approaching the halfway point of a two-year effort to reduce its staff to about 16,000 from 22,721 through redundancies, selling factories and leaving vacancies empty.

The need to curb debt may spur Vestas to announce a rights offer as soon as annual results on Feb. 6, said Jacob Pedersen, an analyst at Sydbank with a neutral rating on the stock.

Go Away

“Fear of Vestas not being a participant in the industry in one, two, five, 20 years, is already there,” he said. “If they want to make this fear go away, they really have to bring down debt. Cash flow is what eventually enables them to pay off their debt,” given the difficulty of selling bonds to pay creditors.

The yield on its bonds due 2015 has risen above 20 percent since the quarterly results, near its May peak of 23.4 percent.

Vestas has 2.2 billion euros of debt due through 2016, including a 1.3 billion-euro revolving loan, according to data compiled by Bloomberg. Lenders include UniCredit SpA, SEB, Commerzbank AG, Nordea Bank AB, DNB ASA and HSBC Holdings Plc.

The producer may be able to avoid a rights issue should its lenders allow the company to access an estimated 460 million euros not yet drawn from the 1.3 billion-euro facility, said Kasper From Larsen, a Danske Bank A/S analyst. Vestas also has 474 million euros of cash and equivalents on its balance sheet.

Potential Liquidity

“The potential liquidity that’s available for the company is roughly 930 million euros,” Larsen said. “That’s absolutely sufficient to see them through it. But we can question whether or not they will have access to the credit facility.”

A Mitsubishi deal, likely a venture using Vestas’s offshore wind technology, may also stave off a rights offer, Pedersen said. Vestas has declined to comment on talks announced Aug. 27.

“As time passes the likelihood of a Mitsubishi Heavy Industries deal has dwindled,” SEB’s Patterson said. Vestas could also sell as many as half of its more than 25 factories worldwide, “however in order to get a decent price this process takes time: Time that Vestas and its banks may not have.”

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