26/11/2014 05:29:19 Cookie Policy Free Membership Login

Q-Cells – The Han (wha & ergy) dynasty – read across to PVCS

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Q-Cells, once the largest cell producer, is being bought by the carnivorous Korean Chaebol, Hanwha group. Hanwha are paying cash in the “medium double digit euro range” and taking on liabilities in the low hundred millions, but the 2012, 2014 and 2015 convertible bond issues by Q-Cells are excluded from the deal, according to yesterday’s statement. With a market cap of EUR 30m, it looks as if there might be some way to go if you interpret the bid to be at EUR 40-50m, also there might be some read across into PVCS. Judgement day is set for Wednesday the 29th, when creditors will give their view on the offer.

© Image copyright rickety

Q-cells was the world’s largest solar cell producer back in 2007 with a myriad technology companies to its portfolio, from string ribbon to Thin Film CdTe, A-Si and CIS. As the solar crisis ensued and rampant Asian supply kicked them off the top spot, ASP’s price falls meant negative earnings and repetitive impairments on assets.

The Company changed tack as Nedim Cen came on board in 2010, divesting and writing off the high risk tech ventures, working capital draining large PV projects, and streamlining the Company business model to refocus on its core strengths of cell production, and an attempt to gain a foothold in the PV installation business with its own branded modules – a direct mimicking of Solarworld’s strategy, whose modules were maintaining a 20-30% price premium at the time.

The refocusing in 2010 came with a refinancing, including a rights issue and a new set of convertible bonds to give breathing space – unfortunately this wasn’t the case as yet again the potent concoction of Chinese oversupply and higher tariff degressions in the west meant Q-Cells was still up against it, leaving them to file for bankruptcy earlier this year in April.

The stock has fallen from highs of almost EUR100 per share in the Winter of ‘07 to a measly 15 cents or thereabouts at present, where it has been oscillating up and down on rumours of a successful transaction with Hanwha.

This isn’t the first time that Hanwha has bought a solar company into the fold. In 2010 they acquired a 50% stake in Solarfun for $371m. On the Q-Cells deal they are promising to keep 75% plus of the workforce, but let’s be honest, how many times have we heard that before – it looks as if the Thalheim German operations will face the cut in the next couple of years.

This isn’t the only predator out there in the solar space, Hanergy, China’s energy giant, bought out Q-Cells’ CIS Solibro unit earlier this year for an undisclosed sum, planning to keep jobs in Sweden and Germany, and ramp production to 100MW from 66MW last year. Furthermore, Woongjin holdings have announced their intention to exit the solar cell business.

It’s the standard industry lifecycle, Introduction, growth, maturity and decline, of which we are sitting in the shakeout phase, straddling growth and maturity, where companies are only interested in reaching a critical mass of economies of scale to ensure their position in the mature phase.

PV Crystalox stated that they held little hope for one of their long term contractors to return cash as the Company had filed for bankruptcy. Taking an educated guess that Q-Cell’s is the most likely candidate, there could be another gift in the wings for the cash rich UK based Company if Hanwha’s offer is approved.

An interesting deal, which from the statements made by Q-Cells, could see upside of 20% plus. The downside risk remains in what the creditors have to say on Wednesday. The convertible bond holders won’t be too happy to just write it all off as is suggested, so there might be a little cash compensation from Hanhwa. Maybe there is just a possibility to scoop a quick 20% here?

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