Kapolei firm signs $298M deal with Chinese company
The contract will help finance its planned polysilicon plant
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A Hawaii-based company has signed a contract worth up to $298 million to supply essential material in the production of solar panels.
The contract provides key funding for Hoku Scientific Inc., which in May lost a tentative $185 million deal with Merrill Lynch & Co. and last month started offering shares to raise money.
In the deal that was to be announced today, Hoku will supply polysilicon to Jiangxi Kinko Energy Co. Ltd., a China-based manufacturer of silicon products. This is Hoku’s fifth major contract for shipments from its $390 million Pocatello, Idaho, plant.
The Hawaii-based company, which posted its first quarterly profit in June after six quarters of consecutive losses.
“Kinko Energy’s ... focus on growth in the solar market make them an excellent long-term partner,” said Hoku Chief Executive Officer Dustin Shindo.
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Hoku Scientific Inc. took a major step yesterday toward financing its planned polysilicon plant, potentially reducing the amount it needs by half.
The Kapolei-based alternative-energy company has signed a contract worth up to $298 million to supply polysilicon, a key material in making solar panels, to Jiangxi Kinko Energy Co. Ltd., a China-based manufacturer of silicon products.
It is Hoku's fifth major contract for shipments from its $390 million Pocatello, Idaho, plant, set to start commercial shipments in early 2009. The deal fills the remaining 500 metric tons of capacity from the plant's expected annual production of 3,500 metric tons.
The contract also supplies a key piece of funding for Hoku, which in May had a tentative $185 million deal with Merrill Lynch & Co. fall through and last month started offering shares to raise funds.
"Kinko Energy's strategic approach and their focus on growth in the solar market make them an excellent long-term partner for Hoku," Hoku Chief Executive Officer Dustin Shindo said in a statement expected to be released today. "Looking over a 10-year period, we are actually slightly oversold at current planned capacity."
Hoku will receive payments through the 10-year contract, starting late next year. Predetermined volumes of polysilicon will be delivered each year at set prices that will decline throughout the term of the agreement. Hoku will receive an initial $10 million deposit that will be used during the plant's ramp-up to pilot production this year, as well as additional prepayments of $20 million by Dec. 20. Another $25 million is due by March 31.
Shindo said the near-term funds will help reduce the company's risk of failing to meet financing guidelines in its other supply contracts.
Contracts for two of the four buyers, Sanyo Electric Co. and Global Expertise Wafer Division, expired May 31, leaving Hoku open to being "materially harmed" if one of the companies pulled out, Shindo said in the company's first-quarter earnings release earlier this month. Shindo said yesterday the company might have to adjust delivery amounts or timing for the two companies to compensate for the Kinko contract.
Suntech Power Co. and Solarfun Power Hong Kong Ltd., Hoku's other two buyers, have extended their contracts through Dec. 31. The contracts are expected to bring total revenues of up to $2 billion.
Hoku will grant Kinko a security interest in its polysilicon assets to secure an obligation to repay $55 million to Kinko as a credit against product shipments over time.
Hoku said earlier this year it would fund the plant through $240 million in customer prepayments and $40 million of its own cash. The remaining $110 million would come from a combination of prepayments from new customers, and from debt, equity and other financing.
Under the agreement with Kinko, up to $55 million could be applied toward the $110 million Hoku needs, Shindo said. Although the company said earlier this month that it had raised $58 million for the plant's pilot production, it will still need to raise funds not covered by the Kinko contract through this year.
"We plan to continue with our equity distribution agreement and other funding strategies, but do not expect we will need to sell as many shares to complete our plant financing," Shindo said.
Last month, the company entered into an agreement with UBS Securities LLC to offer up to $54 million in stock sales. From June 12 through June 30, the company sold 527,815 shares for gross proceeds of $3.3 million. Hoku suspended the program July 1 until the release of first-quarter financial information and plans to resume it within the next month.
