China Buying REC Solar for $640 Million Avoids Trade Spat

A Chinese company offered 4.34 billion kroner ($640 million) to buy REC Solar ASA, one of the last makers of solar panels in Western hands, a move that may help circumvent trade disputes in the U.S. and Europe.

The deal by a unit of China National Chemical Corp. would follow a surge in demand for solar panels, absorbing much of the production that companies supported by the government in Beijing built in the past decade.

Authorities in Brussels and Washington have imposed restrictions on Chinese solar panel imports after accusations from competitors that products were sold below cost. That has required Chinese companies that dominate the panel manufacturing industry to establish subsidiaries with factories abroad that are outside sanctions.

“More such cases are likely to follow, given Chinese companies have a need to bypass international trade disputes and to penetrate local markets,” said Xiaoting Wang, an analyst at Bloomberg New Energy Finance in Hong Kong. “Chinese companies will maintain their dominant position in the PV manufacturing industry by owning more overseas capacities.”

The deal was recommended by REC Solar’s board and has pledges from holders of 20.2 percent of the outstanding shares not to sell before a general meeting convened to approve the transaction, according to a statement released by the two companies in Oslo.

China National Chemical’s unit China National BlueStar Co. will complete the deal through a Norwegian unit, Elkem AS, which employs 2,100 making solar-grade silicon and other alloys.

Search for Buyers

REC Solar has 1,700 workers mainly making panels at a factory in Singapore. It was spun off in October 2013 from Renewable Energy Corp ASA, which had closed all its solar manufacturing capacity in Norway and focused on its solar polysilicon business, now known as REC Silicon ASA.

The board was mandated to sell and started looking for buyers from the start of the spinoff, Chairman Ole Enger said today in an interview in Oslo.

Solar panel producers are recovering from a plunge in prices that followed a surge in manufacturing as Chinese companies expanded factory capacity in the past decade, building the leading companies in the industry including Yingli Green Energy Holdings Co. and Trina Solar Co.

Solar Potential

“The center of gravity in solar has certainly moved from Europe to Asia,” REC Solar’s Enger said today at a news conference. “This industry will be dominated by a few big players. It’s going to be so big, a multi-hundred billion-dollar business. It’s going to be as big as the oil industry.”

The demand for solar installations will be reinforced by this month’s U.S.-China deal to cut emissions, Enger said. He also said he expects the outcome of climate talks in Paris next year to be “positive” for the industry.

“There’s a nice volume growth, which looks good for next year as well,” Peter Hermanrud, an analyst at Swedbank AB, said by phone from Oslo. For REC, he said, “There will be some capacity growth next year so 2015 could be a transition year but I believe 2016 will be a very exciting year.”

China controls all of the top 10 solar companies except Hanwha Corp. of South Korea and Arizona-based First Solar Inc., according to data compiled by Bloomberg. At least two dozen U.S. and European companies were sold off or went bankrupt in the past decade.

Shares Rise

REC Solar rose as much as 15 percent, the most since January, and was up 10 percent at 103.8 kroner by 2:10 p.m. in Oslo. BlueStar’s cash offer of 108.5 kroner a share is a 22.6 percent premium to the one-month volume-weighted average price.

The price recovered by shareholders will likely be about 107 kroner a share after transaction costs, Enger said.

“The Elkem Group has a strategic goal to grow its presence in the solar industry,” Chief Executive Officer Helge Aasen said in the statement. “The Elkem Group and REC Solar have developed a strong business relationship and there is a good strategic match between the companies.”

After suffering from shrinking markets in Europe, where governments have cut subsidies following the financial crisis, producers of solar products like REC are also turning to the U.S. market where installations will almost double by 2016, according to Bloomberg New Energy Finance.

Bluestar bought Elkem in 2011 for $2 billion and has production facilities in Europe, the Americas and Asia. It plans to make use of REC Solar’s distribution channels, Aasen said. REC Solar is the former solar division of REC ASA.

Nomura International Plc and Cipriano AS advised REC Solar along with Advokatfirmaet Schojodt AS. Bluestar and Elkem were advised by DNB Markets and the law firm Thommessen.

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