Solarworld Bonds Plunge With Shares on Push for Debt Revamp
Germany’s biggest maker of solar panels said last night that external financial advisers suggested action to restructure its debt after a review of earnings prospects. The company’s 400 million euros ($537 million) of 6.125 percent bonds due 2017 dropped to 19 cents on the euro at 12:50 p.m. in London after earlier falling to as low as 18 cents.
“The bond price shows that the market is pricing in a high probability that Solarworld won’t be able to continue its operating business,” Erkan Aycicek, an analyst at Landesbank Baden-Wuerttemberg, said today by phone. “Because Solarworld is the German panel industry’s flagship and there’s a lot of money in it, I expect creditors to be open to a debt restructuring. If they decide against it, all their money is lost.”
Competition mainly from Chinese companies cut panel prices by half in 2011 and another 24 percent last year. That tipped more than a dozen companies into bankruptcy including Solar Millennium AG (S2M) and Q-Cells, once the world’s largest producer of power-generating cells. Solarworld has lost money in four of the past five quarters.
“Management is of the opinion that serious adjustments on the debt side are necessary, in particular with regard to the bonds and the assignable bank loans,” Solarworld said in a statement. “There is a predominant degree of probability” that the restructuring can be achieved.
Solarworld reported net debt of 805.2 million euros as of the end of September. The company said in July that lenders relaxed terms on 375 million euros of loans because of “challenging” solar industry markets, and that it paid off more than 130 million euros of loans.
Solarworld has 150 million euros of bonds due in 2016 on top of the notes maturing in 2017, according to data compiled by Bloomberg. Loans typically rank ahead of bonds for repayment.
“I expect the restructuring will take place in the next few days or weeks,” said Martin Cech, a Vienna-based fund manager at Espa Financial Advisors GmbH who said he sold his Solarworld bonds this morning. “Maybe there will be an extension of the bond maturity or a reduction of the face value.”
Solarworld’s revenue totaled 469 million euros in the first three quarters of 2012, down 38 percent on the previous year, according to its latest financial report. Over the same period, the company’s loss before interest, tax, depreciation and amortization was 123 million euros, and cash dropped to 232 million euros from 553 million euros at the end of 2011.
Solarworld lost as much as 33 percent of its value, and traded down 26 percent at 1.13 euros as of 1:20 p.m. German time. Volume exceeded the three-month daily average twofold after less than an hour of trading. SMA Solar Technology AG (S92), Germany’s biggest solar company by market value, fell as much as 4.8 percent. Centrosolar Group AG (C3O) slid as much as 7.2 percent.
“Without a significant debt restructuring, Solarworld would run out of cash before the end of this year,” analysts from Bankhaus Lampe KG wrote in an e-mailed note.
Solarworld has led groups of manufacturers in complaints against unfair competition from Chinese companies in the U.S and Europe. The company’s chief executive officer said Jan. 3 he expects the European Union to announce anti-dumping duties as early as May. The U.S. imposed duties on some Chinese manufacturers last year.
While Solarworld’s outlook is dominated by “enormous insecurities,” a successful restructuring could provide a “new starting point,” said Aycicek at Landesbank.