Suntech Power is dipping its bucket into the credit markets, hoping to raise between $425 million and $500 million to buy polysilicon and fund the expansion of its capacity. This would normally be seen as a positive move, but the news led to a nearly 5 percent drop in Suntech’s shares.
Alas, the markets aren’t exactly normal these days. Suntech is an overvalued stock with $500 million already in convertible notes (and another $500,000 in short- and long-term liabilities), and the credit markets are finicky and volatile. Financing solar-sector growth ain’t what it was in 2007.
Suntech is selling the senior convertible notes, due in 2013 and convertible to cash, ADRs or both, through a private offering. John Hardy, an analyst at American Technology Research, said he wasn’t surprised, given the company’s plans to double capacity to a gigawatt by year’s end. But he said it’s worth watching to see if the deal is done in a timely manner.
Hardy sees a silver lining for MEMC Electronic Materials, a long-term partner of Suntech that is in a strong position to sign long-term contracts on favorable terms. And reading between the lines of Suntech’s announcement, Hardy also sees a sustained demand for polysilicon.
“That a large scale player such as STP, with significant purchasing power and cash on the balance sheet ($615M), finds the need to raise further cash to sign long-term silicon contracts is a sign that the market for the raw material continues to be tight…The poly supply/demand scenario will remain tight at least through 2009.”
Shares of MEMC ended today’s session up more than 6 percent at $76.89.