Vestas-Mitsubishi Talks Focus on Biggest Ocean Turbine

Vestas-Mitsubishi Talks Focus on Biggest Ocean Turbine
Wind-energy projects received $81 billion in investment last year, down from $94 billion in 2010. Photographer: Ken James/Bloomberg

Vestas Wind Systems A/S is in talks with Mitsubishi Heavy Industries Ltd. to build the biggest offshore turbine for the $81 billion wind-energy industry, bolstered by securing financing yesterday through 2015.

Vestas Chief Financial Officer Dag Andresen said the Aarhus-based company was talking with Japan’s largest heavy-machinery maker about developing an 8-megawatt machine, about 30 percent more powerful than the current record-holder. It was the first comment on the nature of the talks announced in August.

Hours earlier Vestas, the world’s largest maker of wind turbines, said it received 900 million euros ($1.2 billion) in financing, driving up its shares by 21 percent yesterday.

“The revised loan means Vestas is now in a better position to negotiate with Mitsubishi,” Haakon Levy, an analyst at DNB Markets, said by phone from Oslo. “A joint venture would make sense. Mitsubishi can contribute industrial expertise, a strong balance sheet and access to the Japanese market, and Vestas its technology and experience in the sector.”

Germany, Denmark and the U.K. are among nations increasing investment in sea-based wind plants to replace fossil-fuel and nuclear generators as clean energy becomes cheaper. Vestas’s rival Siemens AG has won the bulk of offshore turbine orders.

Siemens is testing a 6-megawatt machine as project developers study using bigger windmills to produce more power and reduce then money spent on installation and maintenance. The German manufacturer is considering developing a 10-megawatt turbine, Eva-Maria Baumann, a spokeswoman, said by telephone.

Japanese Market

Andresen said it’s “too early to give an indication on timing” for the completion of the talks.

Vestas previously said it’s studying Japan, Mitsubishi’s home market, where last year’s Fukushima disaster prompted the government to cut reliance on nuclear energy in favor of natural gas and renewable sources. Japanese industrial machinery Maker Hitachi Zosen Corp. is leading a group including Toshiba Corp. and JFE Holdings Inc. that plans to build 120 billion yen ($1.5 billion) of offshore wind farms in the country.

Siemens turbines will make up about 58 percent of Europe’s 4,738 megawatts of offshore wind capacity by the end of the year, New Energy Finance analyst Sophia von Waldow said today. That compares with 30 percent for Vestas.

The rest is split among makers such as Indian manufacturer Suzlon Energy Ltd.’s RePower unit and Areva SA of France.

Wind-energy projects received $81 billion in investment last year, down from $94 billion in 2010, according to data compiled by Bloomberg Industries.

Default Risk

Vestas’s negotiating power is “slightly improved” because of its credit deal, said Janne Vincent Kjaer, an analyst at Jyske Bank A/S. “It doesn’t increase the financial flexibility of Vestas, but it removes the short-term default risk.”

The Danish manufacturer, struggling to return to profit as overcapacity in the industry hurts margins, announced 3,000 job cuts this month. It’s seeking an investor to help it weather falling turbine prices, Andresen said at the time.

Vestas said it replaced a 1.3 billion-euro ($1.7 billion) syndicated facility with 900 million euros of revised credit with nine banks. That’s made up of a 250 million-euro amortizing term loan and 650 million euro revolving credit facility.

The premium on its 4 5/8 bonds due in 2015 compared with a benchmark of similar maturity shrank to 1,686 basis points from 2,035 points yesterday, according to trading data compiled by Bloomberg. The price jumped 5 to 78, the biggest increase since late August.

The stock, which gained 21 percent yesterday after the financing deal, fell 12 percent today to close at 27.85 kroner in Copenhagen, down 55 percent in the year.

Customer Relationship

“This will be very important to us going forward regarding the orders for 2013 and strengthening the customer relationship,” Andresen said in a phone interview after the company released the details of the revised facility.

Vestas, which last year lost money for the first time since 2005, is under pressure to cut its prices as the company gets pummeled by competition from China, where production is cheaper. While the revised loan has increased the company’s credibility, Vestas still faces medium-term market challenges, Levy said.

“The situation in the U.S. is difficult and demand in Europe is slowing,” he said. “Vestas still needs to implement drastic restructuring in 2013 and prove it can execute in all this.”

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