Daniel Englander
Their Own Private Idaho May 19, 2008 at 8:21 AM
The troubled times continue for Hoku Scientific. On May 12, Hoku filed an S-3 with the SEC notifying investors that it intends to raise $110 million through a mixed stock offering. The reason? The $185 million loan financing deal the company signed with Merrill Lynch in December 2007 has fallen through. As part of the deal, Merrill Lynch told Hoku they had to raise $35 million in contingent financing. However, Hoku’s only been able to pocket $25 million - a sum they picked up in a one-time deal that saw Suntech Power take an 11.7 percent stake in the would-be poly manufacturer. The Suntech deal happened in early March, which means Hoku’s been high and dry in the financing world for the last two months.
But Dustin Shindo & Co. aren’t without their share of enablers. Projected costs for the 3,500 metric ton plant in Pocatello, ID, are coming in at $390 million, according to the S-3 filing. Hoku’s planning to use $240 million in customer prepayments, in addition to about $40 million the company has lying around in unmarked twenties. Steadfast friends Suntech Power and Solarfun have extended the company’s financing deadlines from May 31 to Dec. 31. However, both companies, in addition to Sanyo Electric, have extended their financing deadlines a number of times. And, with these new extended deadlines, come a new set of lowered expectations. Both companies have lowered their financing requirements to $75 million, down from the original $100 million.
One of Hoku’s biggest challenges will be completing the pilot plant at Pocatello by October 2008. The pilot plant is expected to cost $112 million - part of this will come from money raised from Suntech, part from a previously committed $29 million, and the rest from the first $55 million tranch of its $110 stock offering. If that ever happens. Hoku’s plant is a high risk endeavor - if it fails the company’s going to be in big, big trouble. Right now the only thing keeping Hoku afloat are PV and electricity sales, mostly in its native Hawaii. It recently penned a deal with the Hawaii Public Utilities Commission for a 218 kW system. Still, it’s failure to cut it in the fuel cell game, and pretty lame attempt at switching over to PV and poly fail to inspire confidence. The company posted an earnings loss in the fiscal year ending Mar. 31, 2008 of $4.3 million - compared with a $2.8 million loss in the previous, while its revenue took a long jump off a short pier, falling to $621,000 from $1.1 million.
It’s uncertain what kind of end is in site for Hoku. The company’s S-3 said “we expect our costs to increase significantly, which will result in further losses before we can begin to generate significant revenue from our Hoku Materials and Hoku Solar divisions. If we are unable to generate signficant revenue and achieve profitability, we will not be able to sustain our operations.” In other words, its got to bring this plant online in a quick and orderly manner. Hampering that will be a growing shortage in tricholorsilane, a key input in the poly production process. Good thing Suntech’s stepped in to help Hoku snag some of that rare TCS - without it the plant may very well be done, despite the fact the company’s committed to building it’s own TCS capacity. A tight silane market and rising costs - Air Liquide and Praxair recently raised their prices 20-30 percent - are among the factors contributing to Hoku’s ongoing problems. Without it, though, Hoku’s planned 2009 production ramp may be in jeopardy.
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