Canadian Solar Inc. (CSIQ - Analyst Report) announced that it has signed a financing agreement with Deutsche Bank AG (DB - Analyst Report). Per the agreement Deutsche Bank will provide $139 million in non-recourse, short-term construction financing to Canadian Solar for the construction of solar power projects in Ontario, Canada. The loans are expected to be repaid with the proceeds of the sale of the respective financed projects.
The loan facility is intended to support the simultaneous construction of five utility-scale solar power plants totaling 49 MW AC. Developed by Canadian Solar, the projects are expected to be built and connected through 2012 and 2013. All of the projects have been awarded a 20-year power purchase contract (the "FIT Contract") by the Ontario Power Authority under Ontario's Feed- In-Tariff Program. As a part of Canadian Solar's turnkey solar solutions, these projects will be acquired by TransCanada Corporation (TRP - Snapshot Report).
Canadian Solar has systematically grown its project pipeline and total solutions business over the past few years by leveraging its brand, focusing on development of project infrastructure and complementary support services. Its deep pockets help the company to further accelerate development of its already robust project pipeline. Recently, in the third quarter, the company completed the sale of a utility-scale solar power plant to Stonepeak Infrastructure Partners for $48.4 million. Subsequent to the quarter, the company completed the sale of two more projects, Brockville 1 and William Rutley, totaling 20MW (AC).
In recent times, Canadian Solar booked positive growth in Europe, most notably Germany, which offset weaknesses in the U.S. market. However, higher volumes were more than offset by steadily falling average selling prices. Average selling prices continued to decline as the Euro weakened and Germany transitioned to a new, lower feed-in-tariff regime.
Looking forward, the company is actively branching out aggressively to capture new opportunities in key solar markets worldwide. The company continues to see attractive opportunities for growth in China, Japan and India, as well as other emerging markets in Asia, Africa and Latin America. Moreover, its specialization at the downstream total solutions business makes it a higher margin business.
However, in the near term, fortunes of Canadian Solar would be impacted by the industry-wide oversupply glut leading to sharply falling average selling prices, tepid module demand in Europe, and rising competition in the market. Given the industry-wide high inventory level, we do not foresee any short-term improvement in margins of the company. The company presently retains a short-term Zacks #4 Rank (Sell).
Canadian Solar Inc. is one of the world's largest solar companies. As a leading vertically integrated provider of ingots, wafers, solar cells, solar modules and other solar applications, the company designs, manufactures and delivers solar products and solar system solutions for on-grid and off-grid use to customers worldwide.
With operations in North America, Europe, Australia and Asia, Canadian Solar provides premium quality, cost-effective and environmentally-friendly solar solutions to support global, sustainable development. Over the longer run, we thus maintain our Neutral recommendation on the stock.