SolarWorld, the German company with a taxpayer-subsidized factory in Hillsboro, may face sale or bankruptcy, analysts say, after its shares and bonds tanked Friday in Frankfurt.
In Hillsboro, where the solar manufacturer once employed 1,000, a spokesman said Friday the company was laying off 50, cutting the work force to 725 by March.
SolarWorld was lured
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SolarWorld, the German company with a taxpayer-subsidized factory in Hillsboro, may face sale or bankruptcy, analysts say, after its shares and bonds tanked Friday in Frankfurt.
In Hillsboro, where the solar manufacturer once employed 1,000, a spokesman said Friday the company was laying off 50, cutting the work force to 725 by March.
SolarWorld was lured to Oregon in 2007 with promises of $100 million in state and local tax incentives. But the solar industry turned volatile as plunging prices caused bankruptcies worldwide in the last two years. And now analysts and the company’s own managers say SolarWorld risks insolvency.
The company’s shares plummeted 31 percent Friday, closing at 1.04 euros, after managers released a statement warning they must make “serious adjustments”to their debt structure. Bonds due in 2017 plunged 43 percent, Bloomberg reported from Berlin.
Depressed world prices for solar cells and panels have undercut the manufacturing industry, driving giants such as Germany’s Q-Cells into bankruptcy last year. SolarWorld managers blame Beijing for subsidizing Chinese manufacturers that flooded the United States and Europe with unfairly priced products.
But industry analysts including Fatima Toor, at Lux Research in Boston, fault Bonn-based SolarWorld for continuing to manufacture in the West, where labor and electricity costs are comparatively high, and failing to differentiate its relatively high-priced products from commodities. She sees China as a scapegoat, even though SolarWorld persuaded the U.S. government last year to levy tariffs on Chinese imports and appears poised to gain similar duties in Europe.
“Probably they’re going to file for insolvency and look for a fire sale of some sort,” Toor said of SolarWorld’s managers. The fate of the Hillsboro plant, she said, depends who buys the business.
Managers at SolarWorld Industries America Inc.in Hillsboro continue to defend the company’s prospects. They insist finances remain strong. They cite product upgrades, innovation and investment – another $6 million in Hillsboro recently atop $27 million announced in August. Santarris said the plant is switching back to make mono-crystalline cells, which convert sunlight more efficiently than multi-crystalline ones.
“Our financials are stronger than almost any other company” in solar manufacturing, Santarris said. “Our technology is more advanced than other companies, and it’s becoming more advanced this year.”
SolarWorld’s German managers issued a news release Thursday saying they had called in outside experts to review the company’s anticipated earnings and business plan. Managers said they expected to have to make serious adjustments regarding bonds and bank loans. They say there’s a “predominant degree of probability” that restructuring will be keep SolarWorld a going concern.
“They need additional capital more or less to survive,” said Martin Cech, a Vienna-based fund manager at Espa Financial Advisors. “It’s really a severe situation for the company.”
Cech said he sold SolarWorld bonds Friday from one of his funds. While the solar manufacturing company may be rescued, he said in a phone interview, “I’m afraid the solution won’t be very investment-friendly.”
But Stefan Freudenreich, of Frankfurt-based Equinet Bank, said “the injection of fresh capital is almost impossible as investors are currently not willing to buy into the solar sector.” Likewise an immediate liquidation would yield hardly anything for bondholders, he said, as solar manufacturing equipment has almost no value because of market overcapacity.
SolarWorld may already have breached its bank loan covenants during the fourth quarter of 2012, for which figures are not yet available, or the company could do so during the first half of this year, Freudenreich said.
“A breach of credit covenants would give banks the formal right to immediately cancel credit lines, a scenario which would end in an insolvency filing,” he wrote in an email responding to questions from The Oregonian.
Freudenreich called SolarWorld’s situation very serious. Its interest burden is much too high, he said, in light of weak revenue generation and margins. In a restructuring, he expects a debt-to-equity swap, bond refinancing or an insolvency resembling a Chapter 11-style bankruptcy reorganization. “Insolvency does not necessarily mean that SolarWorld will not survive as a solar company,” he said.
In London, Bloomberg reported that SolarWorld’s 400 million euros ($537 million) of 6.125 percent bonds due in 2017 dropped to 18 cents on the euro at one point. “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, told Bloomberg.
Chinese competition slashed panel prices during the last few years, helping to force companies into bankruptcy such as Q-Cells and Solar Millennium in Germany and Evergreen Solar and SpectraWatt in the United States.
Solyndra, of California, caused the biggest controversy, when it filed for bankruptcy in 2011, because of the $535 million it had received in federal loan guarantees. Even Chinese companies with booming sales are drowning in debt. Beijing is moving to increase domestic demand for solar products and to consolidate its industry, eliminating smaller manufacturers.
Toor, the analyst in Massachusetts, cited some positive industry developments, however. She said that demand for products is growing. She expects that after many bankruptcies, the industry will stabilize in a couple of years.
But Toor expects that by then, SolarWorld will be out of business or owned by another company. Yet SolarWorld has so alienated Asia by virtue of its bitter trade fight, she said, that Far East companies could be reluctant to acquire it.
Santarris, in Hillsboro, declined to comment on the parent company’s debt issues. But he said SolarWorld continued to launch new manufacturing processes in Hillsboro and Freiberg, Germany. The 50 ongoing layoffs result from a greater share of a new proprietary process being handled in Freiberg, he said.
It’s too early to tell, Santarris said, to what extent the U.S. tariffs obtained by SolarWorld’s coalition might have helped. But U.S. imports of subsidized and dumped cells and panels from China fell in Novemberto their lowest level in at least two years, according to SolarWorld’s trade coalition.
— Richard Read, twitter: ReadOregonian