Solar technology company, SunEdison Inc. recently completed the acquisition of a 50% stake in Silver Ridge Power, LLC (SRP), a subsidiary of The AES Corporation, for $178.6 million in cash.
SunEdison had announced the acquisition of SRP on Jun 17, 2014. It will now have 50% ownership of 336 megawatt (MW) solar power projects and a 40% stake in a 183 MW solar power facility. The facility, scheduled to be completed in 2016, will be built by Tenaska Imperial Solar Energy Center West. The remaining 50% of SRP is held by an affiliate of Riverstone Holdings LLC, which SunEdison plans to buy post the completion of the Tenaska Imperial Solar Energy Center West.
These acquisitions and strategic partnerships in different solar power projects not only increase SunEdison’s total project count but also expand its geographic reach.
Recently, SunEdison also closed a non-recourse debt financing agreement worth approximately $190 million for the construction of the 72.8 megawatt (MW) Maria Elena solar project in northern Chile. Maria Elena, to be constructed in Antofagasta, will be the largest PV solar power plant in Latin America and the first of its kind in Chile. This move will strengthen the company’s position in Chile.
Moreover, SunEdison announced a strategic alliance with local solar wafer manufacturer, Huantai Group, to develop solar power projects in China. Under the five-year agreement, the companies will jointly develop 1.7 gigawatt (GW) solar projects.
Thus, we believe that the current strategy bodes well for SunEdison and will help it to emerge as a pure-play solar project developer. Moreover, the solar power project company plans to utilize the proceeds to deleverage its balance sheet.
It is worth noting that SunEdison reported an 11.3% year-over-year decline in revenues from its semiconductor business in the last-reported quarter. At the same time, the solar business did exceptionally well, growing 86.8% year over year.
Though SunEdison’s growing exposure to the solar energy market is encouraging, project development requires considerable time and investments. Hence, any delay or inability in selling these projects at desired prices could have an impact on liquidity.
Moreover, SunEdison has a highly leveraged balance sheet. The company exited the first quarter with cash, cash equivalents and restricted cash of $526.6 million compared with $643.6 million in the previous quarter. Long-term debt (excluding current portion) was $3.49 billion.
Going forward, the pricing environment and competition from SunPower Corp. (SPWR - Analyst Report) and First Solar Inc. (FSLR - Analyst Report) remain headwinds.
Currently, SunEdison has a Zacks Rank #4 (Sell). Micron Technology (MU - Analyst Report) with a Zacks Rank #2 (Buy) is a better-ranked stock and therefore worth considering.