Silicon glut costly for CPS partner

By Nolan Hicksand Neal Morton
San Antonio staff writers

SAN ANTONIO — The financial performance of the parent company of OCI Solar Power, which leads the consortium selected by CPS Energy to build its massive solar power project, deteriorated significantly between 2011 and 2012, regulatory filings show.

OCI Co. Ltd., a South Korean chemical and renewable-energy conglomerate, saw its revenue shrink by 26 percent in the second quarter of 2012 compared with the same period in 2011.

Over the same period, its profits dropped 83 percent.

In the third quarter, which ended Sept. 30, the company’s meager earnings turned to a small loss of $4.6 million on revenue of $668.5 million, according to data compiled by Bloomberg.

Analysts attributed the company’s sagging earnings to a glut of silicon — a key component in computer chips and solar panels, and a key product for OCI — that has caused prices for the substance to collapse.

“The price of silicon has really collapsed in the last year and a half,” said Shyam Mehta, a senior analyst with GTM Research.

The spot market price for silicon, he added, had fallen from about $70 per kilogram in the first quarter of 2011 to about $17 per kilogram in the fourth quarter of 2012.

OCI Co.’s San Antonio-based subsidiary — OCI Solar — is responsible of ensuring it and other members of the consortium satisfy terms of OCI Solar’s contract with CPS, according to the city-owned utility.

That includes creating 800 jobs and spending $100 million in capital investment locally.

“If the milestones are not met, OCI Solar is responsible and accountable to CPS Energy,” utility spokeswoman Lisa Lewis said

One of the consortium’s key suppliers, Nexolon America LLC, plans to build a solar panel manufacturing facility at Brooks City-Base in San Antonio that would create at least 400 jobs, about half of the total required by the CPS deal.

However, Nexolon America’s parent company, South Korea-based Nexolon Co. Ltd., has reported financial problems of its own — significant enough to raise questions about whether the company has the ability to build and run the plant.

The firm lost nearly $60 million during the first six months of 2012 and saw its revenues decline by 33 percent compared to the same period in 2011, according to the firm’s regulatory filings with its home government. Nexolon Co. also carried a heavy debt load as of June 30.

The company has counted, at least in part, on the CPS deal to keep it buoyant in an industry downturn caused by a glut of solar panel products, according to a presentation delivered at a JPMorgan Chase conference for investors in February 2012.

Still, OCI Solar spokeswoman Amy McCool said the company remained confident that Nexolon America would be able to complete the work on the project, and added that Nexolon America had set aside money for the project.

“We’re really excited about this project, and we’re just getting started on this project, and we’re not really interested in talking about what happens if it fails,” she said. “We’re comfortable with the partners and suppliers that we’ve chosen.”

Nexolon representatives didn’t respond to requests for comment.

But chances the company could bank on OCI Co. for a sizable infusion of cash in a financial emergency don’t look good.

In a quarterly earnings call with analysts three months ago, OCI Co.’s chief marketing and operations officer, Woo Hyun Lee, fielded what he described as a “very uncomfortable question” about how much money the company planned to set aside in a case a subcontractor needed it.

Lee did not mention Nexolon America in his response nor did he specify what type of partner would require such a capital infusion.

“I mean, right now, money is (a) very scarce resource for everyone,” Lee said, according to a transcript of the call. “If any corporation requires massive investment, I think it will be very — I mean, (a) long shot for everyone.”

Part of what would ease the financial strain on Nexolon America as it looks to build the Brooks manufacturing plant is an economic incentive package that the Brooks Development Authority’s board of directors had planned to consider on Tuesday.

BDA officials, however, postponed a vote on a package that would have granted Nexolon America a 10-year lease on an 86-acre piece of land valued at $17 million for the price of $5 million and allocated $12 million in infrastructure improvements for Brooks City-Base.

BDA board Chairman Manuel Pelaez-Prada said the board needed to gather more information about the two South Korean companies and their U.S. subsidiaries before finalizing the package. He said he hoped CPS officials share what informed their “comfort feeling” in the project.

“I’m going to be asking Brooks staff (to get) with CPS to discuss Nexolon’s financial wherewithal to do this deal,” Pelaez-Prada said. “Obviously, I’m going to need a lot more information. I need to do my own due diligence.”

He expected the BDA board to have enough information to negotiate the final terms of the incentive package with Nexolon America as early as next week.