CSIQ Signs Loan Agreement

Canadian Solar Inc. (CSIQ - Analyst Report) announced that it has signed a C$93 million (US$93.8 million) loan agreement with China Development Bank. The loan facility has a five-year maturity and will be used to partially finance the previously announced C$185 million (US$186.6 million) acquisition of a majority interest in 16 solar projects representing approximately 190MW to 200MW DC owned by SkyPower.

Each of the 16 solar projects was awarded a 20-year power purchase contract by the Ontario Power Authority. The projects are in the advanced permitting stage and are expected to commence construction in 2013 and be fully operational in 2014, with the capacity to generate over $785 million in revenue.

SkyPower Global is Canada's largest owner and developer of solar energy projects. SkyPower also has one of the most impressive pipelines of solar projects in North America. With 250 MW of awarded power purchase contracts, including 67 MW of installed operating capacity and more than 2.0 GW at advanced stages of development worldwide, SkyPower prospects, develops, finances, owns and operates solar energy projects from the initial discovery stages through to commercial operation. SkyPower is majority-owned by Los Angeles-based real estate and infrastructure investment firm CIM Group.

Canadian Solar is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules, panels and custom-designed solar power applications. The company designs, manufactures and delivers solar products and solar system solutions for both on-grid and off-grid use by customers worldwide. It mainly focuses on delivering best value in solar with recognized high-performance modules. Canadian Solar has its module agreements spread worldwide.

Being a low cost solar module producer, Canadian Solar focuses on delivering high-performance modules. The prospects for Canadian Solar look favorable based on a geographically diverse customer base and improving operating efficiencies through its vertically integrated manufacturing operation.

However, in the near term, we are concerned about the industry-wide oversupply, leading to sharply falling Average Selling Prices, tepid module demand in Europe and rising competition in the market. Moreover, given the industry-wide high inventory level, we do not foresee any short-term improvement in margins of the company. The company retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. It mainly competes with First Solar Inc. (FSLR - Analyst Report) and Suntech Power Holdings Co. Ltd. (STP - Analyst Report).