Renesola exits Vietnam, India and Korea

The end of the remarkable solar gold rush witnessed in Vietnam this year appears to have been confirmed by Chinese small scale solar developer Renesola in its latest quarterly financial update.

The Shanghai-based business, which plans to relocate its corporate headquarters to the U.S. shortly, has cancelled its project pipeline – as well as those it held in India and South Korea – after determining “projects in these markets are not economically viable for us”.

Renesola’s third-quarter update, published yesterday, reflects a decision by the authorities in Vietnam who in September proposed a 20% feed-in tariff (FIT) reduction for large scale solar projects which had been connected after June. The generous FIT offered in Vietnam up to that point is believed to have secured around 5 GW of solar generation capacity, a significant proportion of which arrived in a scramble to beat the end-of-June deadline.

Chase the margins

With Renesola stating its intention to focus on high-margin project development markets in the U.S., Poland, Hungary, Spain and France, the decision to also withdraw from less rewarding activity in India and Korea saw the company’s project pipeline slashed from 1.4 GW at the end of June to 1.1 GW at the end of September. The permitted, ‘late stage’ pipeline reduced from 714 MW to 399 MW.

The review of market activity carried out by Renesola may be related to a change at the top which was also announced yesterday. Chief executive Shelley Xu will be replaced after less than five months at the helm as she is leaving to “pursue other opportunities”. Chief financial officer Xiaoliang Liang, who has been in post since June last year, has also chosen to leave, citing the same motivation.

The decision of the two executives to pursue those unspecified opportunities appears to have occurred at an opportune moment for Renesola as it attempts to position itself as a global, rather than China-driven business and may reflect an unwillingness by Xu and Liang to relocate, along with the corporate headquarters, to Stamford, Connecticut.

Shareholder representation

While the chief executive will be replaced by former Canadian Solar and GCL Solar Energy executive Yumin Liu, Liang’s decision to depart is particularly timely for Renesola major shareholder Shah Capital Opportunity Fund LLP, which completed a $11 million shares acquisition during the current three-month window to boost the balance sheet of a company nursing a $6 million current-assets-to-liabilities deficit. Liang will be replaced by Shah representative Ke Chen, whose chief task will be reining in capital costs.

In terms of quarterly figures, NYSE-listed Renesola announced revenue of $66 million – $55.6 million of which came from project development and $10.3 million from the sale of electricity – and gross margin of 24.6% for net income of $2.4 million for July to September. That income was lifted by the sale of a 55 MW Polish project portfolio.

With Renesola claiming market leadership in the U.S. states of Minnesota – albeit helped by a slew of project sales at drastically low margins according to a previous update – as well as in Poland and Hungary, the surface detail appears promising for the company. In fact, it was enough to persuade the authors of the latest quarterly letter to shareholders to declare: “We are exiting a multi-year transition period in which we transformed ourselves from an indebted equipment manufacturer into a financially healthy and profitable global solar power project developer.”

Loan looming

A glance at the balance sheet would indicate that statement feels a tad premature. Renesola trumpets the fact it reduced debt by $40 million in the last quarter and highlights long-term borrowings came in to $10.9 million. Short-term borrowings exactly halved to $41.4 million, too, but presumably still include a $28.8 million Romanian loan which an earlier update indicated falls due in March.

That looming debt and current account deficit may explain why Renesola sold off the development rights to half of the 26 1 MW solar projects it secured in Poland a year ago. The Wroclaw-based SUNfarming Polska Asset 4 investment fund of the German SUNfarming Group paid an undisclosed sum for those and Renesola used the latest update to indicate it has 7.7 MW of project capacity for sale in Hungary and 7 MW in Canada, giving the impression it still needs to raise funds ahead of that March deadline.

Outlook

The $11 million from Shah – which significantly overpaid for the shares it acquired based on the current price – and the $9.4 million Renesola has in the bank, up from just $600,000 at the end of June, would indicate the company will be able to meet its obligations but talk of completing the switch to a profitable developer may be jumping the gun.

In terms of its outlook, the company expects revenue of $45-50 million in the last three months of the year, with a gross margin of 10-15% for full-year figures of $130-140 million and 20-25%, respectively.