Friday, August 24, 2012

REC Drops as Bondholder Rejection Boosts Fund Costs: Oslo Mover

Renewable Energy Corp. ASA (REC), the solar-energy group trying to improve its balance sheet amid falling demand, dropped to a record in Oslo after bondholders rejected changes to their accords, increasing refinancing costs.

The Sandvika, Norway-based company declined as much as 12 percent to 1.963 kroner, the lowest since listing in May 2006, and making it the worst performer on the Oslo Stock Exchange’s benchmark OBX index. The shares were suspended yesterday.

The company raised 1.3 billion kroner ($218 million) through the sale of 866.7 million new shares at 1.5 kroner each, it said in a statement today. The offer, equivalent in size to about 90 percent of REC’s issued share capital, was part of a new refinancing plan after investors holding 320 million euros ($402 million) of debt yesterday rejected proposed changes to the terms of their convertible bonds.

The bondholder rejection means REC’s refinancing is now “a bit more expensive” than it would have been, Andreas Strand, an analyst at ABG Sundal Collier Holding ASA, said by phone from Oslo. The outcome is still “better than the alternative where they would default on their debt in 2013 and 2014.”

REC, whose shares have fallen 99 percent since listing six years ago, is trying to improve its finances as excess capacity and weakening demand cuts profits. The company, like its European peers, is under pressure from Chinese rivals that expanded capacity just as demand slowed, causing wafer and cell prices to plummet. Demand also shrank as France, Italy and Germany reduced subsidies to cap booming solar installations.

‘Right Thing’

REC’s decision to push ahead with its refinancing without bondholder support was the “right thing to do because the alternative would be much worse,” said ABG’s Strand, who has a hold recommendation on the stock. “They need the refinancing to be able to have some credibility with their customers and suppliers.”

“The board and shareholders are very happy about the turn- out of events,” Chairman Jens Ulltveit-Moe said by phone.

REC has 997.2 million shares outstanding, according to data compiled by Bloomberg. Excluding a subsequent offer through which REC may raise 375 million kroner, the refinancing will increase its issued share capital to about 1.86 billion shares, diluting the stakes of existing shareholders including Orkla ASA (ORK), a Norwegian industrial and branded goods company.

Orkla, based in Oslo, wasn’t going to buy shares in the original offer, having previously said it planned to sell its stake in REC.

Bank Debt

The company today said it will buy 133.3 million shares under REC’s latest proposal, even as the share offer dilutes its stake to about 28.4 percent from 40 percent beforehand.

The share issue, combined with a refinancing of REC’s bank debt into a 2 billion kroner facility maturing in April 2014, “will strengthen our balance sheet and enable us to withstand a very difficult solar market,” spokesman Mikkel Torud said by mobile phone today. “It was better for the company and our shareholders to find another more compact solution than initiate any further discussions with convertible bondholders.”

Shares in REC were down 5.9 percent at 2.09 kroner as of 1:51 p.m. in the Norwegian capital.


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