Bondholders approve REC split

After presenting bondholders with an enhanced bond buyback offering last week, REC has secured the approval of major investors for the company to be split into REC Solar ASA, and an as yet unnamed polysilicon operation.

The splitting of the company is contingent upon REC buying back some its senior bonds REC01, REC02 and REC03, under the terms set out.

In the statement issued by REC today, the company reiterated the following measures as a part of the move:

"REC will establish REC Solar ASA as an independent listed company;

REC shareholders will be offered non-tradable subscription rights in REC Solar ASA;

The offering of 100 percent of the shares in REC Solar ASA, valued at NOK 800 million (US$133 million), has been underwritten by the largest shareholders of REC;

Both companies will improve their financing, with REC Solar ASA being established as a debt-free leading provider of solar panels and solutions."

Clean balance sheet

Goetz Fischbeck, an executive director of equity research with Bankhaus Lampe, told pv magazine that REC’s polysilicon business supplies both the semiconductor and solar market. The splitting off of the polysilicon operations therefore allows investors interested only in the polysilicon business the opportunity to invest directly in it, while avoiding exposure to the solar wafer, cell and module business.

Fischbeck believes that the split of the company will result in a stronger financial position of REC solar, with a clean balance sheet. On the other hand investors appear more willing to support a capital increase for the polysilicon business rather than for the solar unit, at this point in time.

"When a company splits, there is one thing that it can do indirectly, that is decide how the debt and the cash is split up between the two new units," says Fischbeck. "And interestingly REC is attempting to ensure that the solar industry is well funded."

REC said today that REC Solar would be led by CEO Øyvind Hasaas, with headquarters in Singapore. REC Solar will retain cash of NOK 300 million (US$50 million), with a credit facility of NOK 200 million (US$33.3 million) from REC. This may be replaced with third party financing. REC Solar will be debt free.

However it is not a pure gain for REC’s operations by splitting the company, Fischbeck adds. Not only will the ‘pure play’ businesses be exposed more acutely to fluctuations and cycles within their respective businesses, furthermore there will be duplication in corporate functions, increasing costs. "Obviously some corporate and central functions that were handled in one unit today, will have to be handled separately," he says.

REC has indicated that it will call for an Extraordinary General Meeting (EGM) to approve the splitting of the company, "on or about September 23, 2013." REC Solar’s listing on the Oslo Stock Exchange will occur around October 18. Subsequent to listing the bond buybacks will take place.

As to whether there are major hurdles remaining for REC to overcome before the company is split, Fischbeck believes that while there are formalities remaining, it is likely to go through. "It’s not the case, formerly speaking, that this has been signed off on," says Fischbeck, "but I believe that as the major shareholders have already signaled their support, that should guarantee the support required."