Knobias Clip Report (01-02-2008)
Submitted By Knobias ClipReport
HOKU: Amends Supply Agreements; Enters Pact to Build Substation
The first trading day of the year started with a bang to the downside as the Dow plummeted towards the 13,000 level. Causing the market to dig itself into a hole to begin the year was ISM data showing less than expected numbers and some antsy fingers out there in the oil world buying future contracts for $100 a barrel causing some wary eyes to take notice.
With crude hovering at all time highs during historically lower demand months, the new year sets the stage for alternatives continuing their rally throughout 2008. Oil at $100 in January equals 100+ come summer and the driving season. Solar has seen most of the action. Panel suppliers, polysilicon producers, and everything in between flourished during 2007. With oil continuing its climb and breaking new psychological barriers, albeit for just a moment, the demand for alternatives will continue.
Hoku Scientific Inc (HOKU) reported that they amended their polysilicon supply agreement with Sanyo Electric. As many know, HOKU has gone from a relatively obscure, 3 pronged clean energy company to securing over $1 billion in polysilicon supply contracts without having a facility or the financing to build a facility to produce the polysilicon.
The Company entered the agreement with Sanyo for the sale of polysilicon in January of 2007 which provided the Company could earn up to $370 million over a seven year period. Sanyo advanced the Company $2 million and deposited $109 million in escrow at the Bank of Hawaii. The Company had until the end of 2007 to secure financing for the construction of their facility. The amendment now requires HOKU to secure financing by February 15th. The Company also amended the agreement signed with Solar-Fabrik in Junes of 2007. Under the agreement, Solar-Fabrik provided $2 million in cash, a $25 million standby letter of credit, and was to provide an additional $26 million standby letter of credit to HOKU. Solar Fabrik was unable to provide the additional $26 million letter of credit which gave HOKU the opportunity to cut back the volume and increase the price of the products in the prepay contract.
HOKU also signed an agreement with Idaho Power Company for the construction of a substation which would provide power for the polysilicon production plant. HOKU agreed to pay $3.7 million on January 8th and would have to pay an aggregate $14.8 million for the completion of the substation.
While the amendments could be considered a positive, they also shed light into the Company’s inability to secure debt financing on agreeable terms to continue construction of their polysilicon plant. On December 5th, HOKU did sign a non binding agreement with Merrill Lynch for $185 million in debt financing but would have to provide approximately $35 million of their own for the construction.
With only $25.9 million in cash including $9.4 million of LT restricted cash after their latest quarter which doesn’t take into consideration the payment to Idaho Power next week, it looks like the Company may have to turn to equity financing to procure the needed amount of money to receive the financing and other customer prepayments to finance the facility. With that in mind, investors would be wise to watch.
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