Shares of SunEdison Inc. SUNE plunged as much as 50.9% on Apr 4, 2016, to a new 52-week low of 20 cents and eventually closed at 21 cents. This represented a one-year decline of 99.2% and a year-to date fall of 95.9%
Why the Plunge?
According to Reuters, “TerraForm Global Inc. on Monday sued its controlling shareholder, SunEdison, accusing the cash-strapped solar power plant builder of diverting $231 million of the company's cash to pad its balance sheet rather than to finish important projects in India.”
What’s worse, SunEdison tanked, after one of its two yieldcos, TerraForm Global Inc. GLBL recently warned that the company is at a “substantial risk” of bankruptcy.
Adding to the woes, lately few reports also pointed out that the solar energy company may get delisted from the New York Stock Exchange (NYSE) due to “abnormally low” traded share price. Per NYSE rules, non-compliance occurs if a company’s average closing share price over a 30-day period is less than $1.00.
Things turned worse after the company sought more time to file its 10-K with the Securities and Exchange Commission (SEC). Misappropriations of certain accounting practices of the company caused the delay.
This delay also put SunEdison’s yieldco TerraForm Power TERP in trouble. TerraForm Power was unable to file its 10-K as it has to rely on SunEdison’s systems and personnel to complete its financial reporting and control processes. Consequently, it received a delisting letter from Nasdaq. The company will now have to submit a plan by May 16 to regain its status.
The stock has been on a downtrend since the second half of 2015 as investors have become increasingly cautious over the company’s ability to finance its projects. Last year, the company made a string of buyouts to expand its global operations and become the world’s leading renewable energy developer.
Vivint Solar Inc. VSLR had earlier terminated the deal related to its acquisition by SunEdison as the latter failed to meet certain obligations. We note that SunEdison has been struggling to finance its projects due to high debt as a result of a string of buyouts, including First Wind and Solar Grid Storage, made over the past one year.
The situation worsened in July last year when SunEdison entered into a definitive agreement to acquire Vivint Solar in a cash-stock deal worth $2.2 billion.
These acquisitions, once believed to be strategic, are now burning a hole in SunEdison’s pocket. The acquisitions have taken a toll on its balance sheet with total outstanding debt (including current portion) nearly doubling to $11.7 billion at the end of third-quarter 2015 from $6.3 billion a year ago. In our opinion, a highly leveraged balance sheet may limit its financial flexibility and weaken earnings growth prospects.
Also, the pricing environment and competition from SunPower Corp. and First Solar Inc. remain headwinds.
SunEdison currently carries a Zacks Rank #2 (Buy).
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