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Hoku Scientific and Tianwei New Energy Holdings have signed a definitive agreement that will make the vertically integrated Chinese solar company the primary shareholder of Hoku. The deal stipulates that Tianwei take a majority investment in Hoku and that debt financing by Tianwei and China Construction Bank be used to complete Hoku's Pocatello, ID, polysilicon production facility, which has faced numerous delays in its construction schedule because of financing and other issues.
The companies said that the transaction will involve the conversion of $50 million of an aggregate of $79 million in secured prepayments previously paid by Tianwei to Hoku under certain polysilicon supply agreements into shares of Hoku's common stock and related warrants.
In addition, there will be a provision of $50 million in initial debt financing for Hoku, together with a commitment from Tianwei to assist Hoku in obtaining additional financing that may be required by Hoku to construct and operate the Pocatello facility.
Hoku confirmed that the $50 million in debt, plus prepayments from its existing customers, is expected to be sufficient to complete construction to the point where it could begin shipments to customers, and it intends to delay any additional financing until such time.
On the basis of these funding sources, Hoku reported it is preparing to issue orders to resume full-scale plant construction at an accelerated pace on closing of the financing.
Since Tianwei will become Hoku's majority shareholder, it will have the right to nominate a majority of the members serving on Hoku's board; effective on closing, Hoku will increase the size of its board from five to seven members, three of whom will be selected from Hoku's existing board, and four of whom will be selected by Tianwei. Tianwei will have the right to appoint the chairperson.
Hoku will maintain its headquarters in Hawaii, and says it has no plans to lay off any of its current employees and expects to accelerate hiring in the coming months as it prepares for polysilicon production.
Throughout a difficult 2009, Hoku has sought to secure additional customers and related prepayments and strategic investors or financing sources that would allow the company to complete construction and procurement of its polysilicon plant. Hoku retained Deutsche Bank as its financial adviser to identify investment and financing sources, as well as a potential acquirer. The company also considered other actions, including a restructuring, and liquidation of assets.
Hoku's board concluded that the announced transaction with Tianwei is the only viable option to avoid a Chapter 7 bankruptcy and liquidation of the Hoku Materials polysilicon business.
"With very limited financing choices available, the agreement with Tianwei is a significant step forward toward our goal of becoming a top-tier global provider of clean energy solutions," said Dustin Shindo (pictured), chairman/CEO of Hoku. "This transaction is expected to alleviate the financing challenges we have experienced during these difficult macroeconomic times, allowing us to focus on execution in all areas of our business.
"Given the pace and scale of projected expansion in the PV market, Hoku had concluded that organic growth alone would not have allowed us to increase scale sufficiently fast enough to become a significant player in the U.S. and global markets."
"With the polysilicon plant financing in place, we will be able to concentrate our efforts on meeting our contractual delivery obligations," he added. "We look forward to providing our current and future polysilicon customers with stable, long-term supplies of low-cost, high-quality polysilicon."
Hoku confirmed it was in ongoing discussions with prospective customers regarding potential new long-term polysilicon sales agreements.
"This strategic investment allows both companies to draw on each others' strengths, and creates a world-class vertically integrated partnership that will have exceptional cost control throughout the entire solar value chain," said Ding Qiang, chairman of Tianwei Group. "Hoku's entrepreneurial approach and clean energy expertise nicely complement Tianwei's strategy, financial position and experience. We are convinced that this combination will allow both Hoku and Tianwei to expand their respective market shares and accelerate their growth in the renewable energy industry."
