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REC Slides as Chairman Quitting Spurs Share Concerns: Oslo Mover

Renewable Energy Corp ASA fell to a two-month low in Oslo trading as weaker cash flow and the resignation of Chairman Jens Ulltveit-Moe added to concern about the strength of the solar company’s balance sheet and a possible share issue.

REC, based in Sandvika near Oslo, dropped as much as 14 percent to 0.765 kroner, the lowest intraday level since Dec. 10, and was down 12 percent as of 3:50 p.m. local time. More than 49 million shares were traded, about 40 percent above the three-month average daily volume.

“REC will struggle to meet its 2014 obligations and we see a high risk of equity owners being severely diluted in a restructuring,” Danske Bank A/S said in a note to clients today. The chairman’s resignation also creates a “potential share overhang that could weigh on REC going forward,” said the Danish lender, which has a sell recommendation on the stock.

Chief Executive Officer Ole Enger is “quite optimistic” the company will be able to refinance its debt, he said in Oslo on Feb. 8. He declined to give any more detail on the company’s refinancing options when asked in an interview after a presentation. REC spokesman Mikkel Toerud said he can’t add to the comments made by the CEO on Feb. 8, he said by phone today.

REC is in discussions with its banks about changes to covenants on a 2 billion-krone ($363 million) credit line maturing in April 2014, Chief Financial Officer Kjell Christian Bjoernsen said Feb. 8.

Refinancing Processes

REC must also refinance a 320 million-euro convertible bond and a 650 million-krone fixed-rate note due 2014.

The resignation of Ulltveit-Moe, who’s being replaced by Mimi Berdal, is “negative given his experience in refinancing processes among other things,” SEB AB said in a note yesterday. Ulltveit-Moe owns about 9.5 percent of REC, according to data compiled by Bloomberg.

“It is still likely that REC could breach its nominal Ebitda bank covenant to be measured at the end of the first half of 2013, as prices are not expected to improve enough,” SEB said. REC, which is grappling with falling costs amid excess capacity, 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.

The company will post a loss of 7.6 million kroner in the first quarter, according to the average of seven estimates, and Ebitda of 86.7 million kroner in the second quarter, according to the mean of six estimates.

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.

The company is failing to “reduce cash costs in line with its target,” Eirik Vegem Dahle, an analyst at Pareto Securities AS, said in an e-mail on Feb 8. REC’s fourth-quarter cash flow was about 100 million kroner less than expected, increasing the likelihood of an equity issue, he wrote.

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