IN DEPTH: SolarWorld still standing

Only one of Europe’s once-mighty PV manufacturers has a chance of surviving and being able to compete against Chinese rivals (without being bought by an Asian company or shifting its production overseas.)

Yet this firm was almost €1bn ($1.4bn) in debt less than two months ago and widely expected to collapse.

It also happens to be the company that instigated the anti-dumping campaigns against China’s PV industry in both the US and the EU — at the risk of starting a global trade war and angering every downstream solar company that benefited from cheap modules.

It has been an extraordinary year or so for Germany’s SolarWorld.

“We have struggled massively, but successfully in 2013,” SolarWorld vice-president Milan Nitzschke tells Recharge.

“You just need to stand on a solid footing financially to remain in the market. And for that, we needed the restructuring. That was the prerequisite for a positive continuation of the business.”

The restructuring, which was completed in late February, involved a brutal debt-to-equity swap, in which creditors lost 55% of the money owed to them in exchange for new shares in the restructured company. In that process, old shareholders lost a whopping 95% of their holdings. Some investors took legal action to prevent the move, but in January their lawsuit was rejected at a regional court in Cologne.

“SolarWorld decided to carry out a restructuring in a situation of massive Chinese dumping and large global overcapacities — China’s output capacity alone is double the global demand. What came out for shareholders in the end is the best of all possible outcomes,” says Nitzchke.

On top of this, SolarWorld has laid off 800 employees in Germany and the US since early 2012, and won some important new investors.

Qatar Solar paid about €36m for a 29% equity stake in the revamped SolarWorld in February, while the German company’s wealthy founder and chief executive, Frank Asbeck, repurchased a 19.5% stake through a private investment at about the same time. Qatar Solar is a holding company that itself is owned by the Qatar Foundation, set up by the Qatari government to support education and science projects.

At the same time, SolarWorld holds a 29% shareholding in Qatar Solar Technologies (QSTec), a joint venture with Qatar Solar, initially aiming at building up a polysilicon factory in Qatar that is slated to start output from this autumn.

QSTec provided a €50m credit line to SolarWorld in January, deepening the Qatari involvement in the German company.

This capital injection puts SolarWorld on a “significantly more stable” financial footing again, says First Berlin Research analyst Karsten Von Blumenthal. “With the fresh money [from Qatar] the company is able to act again.”

The co-operation with Qatar also opens the way for PV module sales across the promising Middle East market.

“We see SolarWorld in a clear advantage in the Arab area, one of the global growth regions,” says Sven Diermeier, an analyst with Independent Research in Frankfurt.

Although details of the exact nature of the relationship are still under wraps, Nitzschke confirmed in mid-March that SolarWorld will help QSTec to build module manufacturing capacity in Qatar, which would serve the rapidly expanding Middle East market.

“We see this co-operation as a door opener,” Diermeier says. “I assume that SolarWorld will provide the technological know-how.”

By the end of its restructuring, SolarWorld had reduced its debt from a staggering €997m to a more manageable €427m.

The debt had accumulated amid global overcapacity, substantial feed-in-tariff cuts at home and brutal declines in panel prices that drove many high-profile German solar firms into bankruptcy. Insolvent rivals such as Conergy and Q-Cells were taken over by US and Asian investors, while major players such as Siemens and Bosch exited the sector altogether. The only other large European PV firm remaining, Norway’s REC, was split into two, effectively becoming Singaporean and US-based companies.

Yet while all this was happening, SolarWorld acquired more than 700MW in cell and 200MW in module production from Bosch Solar Energy in Arnstadt, Germany. Such a move might seem crazy, given SolarWorld’s huge debts and the fact that Bosch — a respected industrial giant — lost €2.4bn on its solar adventures in recent years. But according to reports, the deal included a “dowry” or payment of €130m to finance the salaries of about 800 former employees at the plants for two to three years — an astonishingly generous move by a private company that clearly likes to look after its staff. Neither company has denied the reports.

“Bosch hadn’t succeeded in organising its solar business profitably,” says Diermeier. “However, SolarWorld has been in the business as a pure PV company significantly longer. Solar had never been a core competence of Bosch.”

Nevertheless, Bosch’s engineers have a reputation for excellence. And the company has made inroads in yield-improving PERC (passivated emitter and rear contacts) cell technology that complements SolarWorld’s own experience in that field.

The Bosch assets means SolarWorld is now one of the few PV manufacturers with more than 1GW of capacity — a status that had seemed to be the sole preserve of Chinese companies.

“We’re playing in the top ten again and are the quality leader in the solar industry,” Nitzschke boasts, even though the world’s ten leading solar module suppliers each sold at least 1.2GW last year.

SolarWorld believes that the restructuring and the Bosch acquisition will put it on a growth path again. In 2013, it shipped 588MW of modules and this year it expects growth of at least 40% and a return to positive earnings (before interest and tax) in 2015.

Experts such as Warburg Research analyst Stephan Wulf think the company can pull it off.

SolarWorld says it is well positioned in global growth markets such as the US, Japan and South Africa, where sales increased in 2013, which at least partly compensated for a reluctance to buy SolarWorld panels in Germany, where consumers are more aware of the company’s restructuring woes.

SolarWorld last year concentrated its American operations at its base in Hillsboro, Oregon, closing down its manufacturing facilities in California. Despite the downsizing, US production is key to the company’s survival plans with solar demand soaring and an expected 6GW of installations this year.

The company is also vying to increase its share of the red-hot solar market in Japan.

“[SolarWorld] is well positioned in the Japanese market, which has no appetite for Chinese products,” says Wulf.

Question marks remain about the company’s shrinking home market, however. New installations more than halved to 3.3GW last year, and are expected to consolidate to about 3GW this year, according to analyst IHS. Plans by the government to slap a surcharge on self-consumption could further shrink the German market.

Despite the world’s largest market, China, being firmly closed to SolarWorld after its anti-dumping crusade, Nitzschke points out that overseas markets already make up three quarters of the company’s business.

“Globally, the solar market is in an upswing again, it is a clearly growing market,” says von Blumenthal.

But to remain competitive in foreign markets, SolarWorld will need to make a concerted effort to lower its prices.

“SolarWorld’s product is still a bit more expensive than that of Chinese producers,” Wulf says.

As the Chinese know, economies of scale are vital in driving down costs, so the Bosch acquisition may be a positive step in the right direction.

But not everyone is optimistic.

Heinz Steffen, an analyst with Paris-based Alpha Value, believes SolarWorld will not survive. Apart from the US, the company’s main production facilities are based in a market that won’t grow, while the Chinese market will remain closed to it, he argues.

Price pressures on modules will resume, and prices are likely to fall again by around 5% a year on average, he predicts.

It also remains to be seen how long the EU-China price compromise will hold, says Henning Wicht, principal PV analyst at IHS in Munich.

Perhaps it is telling as well that despite the positive restructuring news and the beefed-up production scale, not one analyst has issued a “buy” recommendation for SolarWorld shares, although Deutsche Bank has been advising “hold”.

It remains to be seen whether the revamped company can endure ongoing pressures in the highly competitive global market.

But for now — given the improvement on the financial side, backing from Qatar and growing global PV markets — “the situation never looked better for SolarWorld in the past years,” says von Blumenthal.