REC ASA - Calls upon bank guarantee and terminates contract
(Thomson Reuters ONE) - Sandvika, September 9, 2009, REC has decided to terminate a long-termtake-or-pay contract with the Chinese solar energy company ChinaSunergy for deliveries of mono wafers. China Sunergy has not renewedthe required guarantees and the parties have not agreed on revisedterms. As a consequence, REC has called upon a USD 50 million bankguarantee established by the customer to cover its paymentobligations.REC has since 2006 signed several long-term take-or-pay contractswith a range of customers. In these contracts both price and volumeare typically predetermined for the entire contract period, and nomechanisms allow the customer to renegotiate terms and conditions.These contracts are also typically supported by bank guaranteesestablished to secure part of REC's outstanding receivables.Given the increasingly difficult market development in 2009, withfalling prices and declining capacity utilization, REC has engaged indialogue with its customers in order to assist them in coping withthe short-term effects of the market downturn. In most cases, REC andits customers have been able to find solutions for 2009 which arecommercially acceptable to both parties. Should the market weaknesscontinue into 2010, it may be in REC's best interest to make furthercontractual adjustments.The contract in question was entered into in 2008 as a take-or-paycontract as described above. The total contract value is estimated atNOK 2.4 billion, covering deliveries of predefined volumes atpre-defined prices in 2009-2015. The contract prices were at the timeof signing considerably below the spot market price for mono wafers,reflecting the long-term nature of the commitment by both parties.REC has made serious efforts to reach an agreement that could lay thebasis for continued cooperation with China Sunergy. As REC saw thepossibility of finding solutions of common interest, REC hasdemonstrated a high degree of flexibility to discuss a range ofoptions that could address customer needs. Despite this, it hasregrettably not been possible to resolve the situation, and REC hastherefore decided to call upon the existing time-limited bankguarantees to protect its interests.In this particular contract, the bank guarantee structure requiresannual renewal, but China Sunergy has failed to provide and renewsufficient bank guarantees in time. It is REC's intention to continuethe negotiation with China Sunergy to try to find an acceptablesolution. However, as the bank guarantees may cover only parts of theloss, REC will also consider further legal actions to cover any suchloss.For more information, please contact:Jon André Løkke, SVP and Investor Relations Officer, +47 907 44 949About RECREC is the leading vertically integrated player in the solar energyindustry. REC Silicon and REC Wafer are among the world's largestproducers of polysilicon and wafers for solar applications. REC Solaris a rapidly growing manufacturer of solar cells and modules, and arealso engaging in project development activities in selected segmentsof the PV market. REC had revenues of NOK 8 191 million and anoperating profit of NOK 2 529 million in 2008. Close to 3 000employees work in REC's worldwide organization. Please also seewww.recgroup.com.This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 09.09.2009 - 17:01 Uhr
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