REC ASA - Calls upon bank guarantee and terminates contract

Sandvika, September 9, 2009, REC has decided to terminate a long-term take-or-pay contract with the Chinese solar energy company China Sunergy for deliveries of mono wafers. China Sunergy has not renewed the required guarantees and the parties have not agreed on revised terms. As a consequence, REC has called upon a USD 50 million bank guarantee established by the customer to cover its payment obligations.
REC has since 2006 signed several long-term take-or-pay contracts with a range of customers. In these contracts both price and volume are typically predetermined for the entire contract period, and no mechanisms allow the customer to renegotiate terms and conditions. These contracts are also typically supported by bank guarantees established to secure part of REC's outstanding receivables. 
Given the increasingly difficult market development in 2009, with falling prices and declining capacity utilization, REC has engaged in dialogue with its customers in order to assist them in coping with the short-term effects of the market downturn. In most cases, REC and its customers have been able to find solutions for 2009 which are commercially acceptable to both parties. Should the market weakness continue into 2010, it may be in REC's best interest to make further contractual adjustments.
The contract in question was entered into in 2008 as a take-or-pay contract as described above. The total contract value is estimated at NOK 2.4 billion, covering deliveries of predefined volumes at pre-defined prices in 2009-2015. The contract prices were at the time of signing considerably below the spot market price for mono wafers, reflecting the long-term nature of the commitment by both parties.
REC has made serious efforts to reach an agreement that could lay the basis for continued cooperation with China Sunergy. As REC saw the possibility of finding solutions of common interest, REC has demonstrated a high degree of flexibility to discuss a range of options that could address customer needs. Despite this, it has regrettably not been possible to resolve the situation, and REC has therefore decided to call upon the existing time-limited bank guarantees to protect its interests.
In this particular contract, the bank guarantee structure requires annual renewal, but China Sunergy has failed to provide and renew sufficient bank guarantees in time. It is REC's intention to continue the negotiation with China Sunergy to try to find an acceptable solution. However, as the bank guarantees may cover only parts of the loss, REC will also consider further legal actions to cover any such loss.
For more information, please contact:
Jon André Løkke, SVP and Investor Relations Officer, +47 907 44 949
About REC
REC is the leading vertically integrated player in the solar energy industry. REC Silicon and REC Wafer are among the world's largest producers of polysilicon and wafers for solar applications. REC Solar is a rapidly growing manufacturer of solar cells and modules, and are also engaging in project development activities in selected segments of the PV market. REC had revenues of NOK 8 191 million and an operating profit of NOK 2 529 million in 2008. Close to 3 000 employees work in REC's worldwide organization. Please also see