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					                                                                                                                                            WEDNESDAY
REC– Bank refinancing will be a crucial bond trigger                                                                                        25 APRIL 2012


RECENT EVENTS                                                                                                                               ANALYST
REC reported Q1 2012 sales of NOK 2.1bn, 25% down from last quarter and almost 50% lower than Q1                                            Henrik Blymke
2011. Adjusted EBITDA was NOK 27m, significantly lower than Q1 2011 (NOK1.4bn), but up from the                                             +47 22 82 72 85
negative NOK178m reported in Q4 2011. Adjustments in the quarter relate to a NOK 795m positive                                              CREDIT RATING
effect from terminations of polysilicon and wafer sales contracts, and a NOK 366m negative effect                                           B+/Negative
from the permanent shutdown of the Glomfjord operations.
                                                                                                                                           COMPANY INFO
The continued overcapacity in the solar industry put pressure on market prices throughout the quarter.                                     REC is the world’s largest
REC's average selling prices for polysilicon fell 15%, wafer prices fell 24% and module prices fell 18%.                                   producer of silicon
Currently, market prices are at, or below, the cash cost of the marginal producer for all products, a                                      materials for photovoltaic
situation that can not continue over time. The industry is seeing supply being reduced through shut-                                       (PV) applications and PV
                                                                                                                                           wafers as well a
downs of capacity and insolvencies, but this is likely not to be enough to alter the projected                                             significant producer of
overcapacity situation throughout 2012.                                                                                                    cells and modules.

REC continued to show strong commitments to preserve its cash flow, generating NOK 636m of free                                            The production facilities
cash flow in the quarter (helped by termination fees and reduced working capital), reducing the net                                        include: Silicon materials
debt to NOK 4.2bn. However, as LTM’s EBITDA has deteriorated rapidly, the total leverage ratio                                             plants in Moses Lake and
increased substantially to 5.3x from 2.5x (net leverage is less aggressive at 3.7x). Following the bank                                    Butte (in the US), the
                                                                                                                                           wafer production sites in
amendment in March 2012, management said they now can exclude shut-down related costs from the
                                                                                                                                           Herøya (Norway, but will
EBITDA calculation in their covenant definition, and thus they are now comfortable meeting the                                             be closed down) and Tuas
requirements (i.e. levels have also been widened) in the short term. This is important given the                                           (Singapore), and the solar
additional Norwegian plant shut-down costs to be taken in 2012.                                                                            cell and module
                                                                                                                                           production located in
Negatively, management has not completed the ongoing bank loan extension discussions, leading us                                           Singapore
to believe that the negotiations are somewhat tough. With NOK 1.9bn in cash and NOK 1.7bn in
outstanding bank maturities in 2013, the bank could get fully repaid, but that would create a liquidity                                    Oversupply in the market,
                                                                                                                                           lower subsidy schemes
squeeze thereafter and pressure on bond refinancing of 2014 maturities. Thus, we still expect the bank                                     and price pressure, drive
facility to be refinanced, given management’s prudent capital preservation and limited capex plans.                                        the needed cost
The refinancing could include the capital market debt maturing in 2014 as well, given the fact that the                                    reduction efforts.
banks do not want to see these maturing prior to a new bank maturity date.
OUR VIEW                                                                                                                                   SHAREHOLDERS
                                                                                                                                           Orkla (39.7%)
Based on the rapidly deteriorating profitability, weaker credit metrics, continued low market visibility,
                                                                                                                                           Umoe (3.3%)
unresolved extension of bank debt maturity and anticipated lack of support from its majority owner,
                                                                                                                                           Folketrygdfondet (2.8%)
we downgrade REC’s credit rating to B+ from BB- while maintaining a negative outlook. With REC’s
bonds (REC01, REC02, REC03 and convertible) indicated at 90/94, 72/76, 68/71 and 60/62
respectively, we note that the yields are attractive for the rating category. Still, we maintain a                                         MANAGEMENT
marketweight recommendation, due to the event risk described above. Among its bonds, we favour                                             CEO: Ole Enger
REC01 (most likely part of refinancing), while we are most sceptical to the subordinated convertible.                                      CFO: Bjørn Brenna
                                                                                                                                           COB: Dag J. Opedal


                     CREDIT STRENGHTS                                                                    CREDIT CONCERNS
   Market leading & integrated value chain position                                    Failure to succeed with its costs reduction and
   Demonstrated support from its relationship banks and the                             optimization goals, as selling prices are dropping rapidly
    company has issued equity when needed                                               Dependence on certain customers, combined with
   Increasing awareness for “clean” energy, providing long-                             counterparty risks and warranty risk related to modules.
    term growth prospect                                                                An industry with overcapacity and limited visibility
   Strong cost position in polysilicon, which is its least volatile                    Some refinancing uncertainty, with significant maturities
    segment and has the highest barriers to entry                                        in 2013 and 2014
                          Important - your attention is drawn to the statement on the last page of this report which affects your rights
Norwegian HY Update




                                                                                             Outstanding bonds
Ticker                    Issuer    Corp   Bond         Sector            Issue             Maturity        Coupon                     Bond (mill)               Rank                                     Other terms
REC01                     REC ASA   B+      B+          Energy      16.09.2009             16.09.2014          11.00 %                 NOK      1 250     Senior unsecured              Upstreeam guarantees, CoC put @100
REC02                     REC ASA   B+      B+          Energy      03.05.2011             03.05.2016      N3M+435                     NOK      500       Senior unsecured              Upstreeam guarantees, CoC put @100
REC03                     REC ASA   B+      B+          Energy      03.05.2011             03.05.2018          9.75 %                  NOK      700       Senior unsecured              Upstreeam guarantees, CoC put @100
                          REC ASA   B+      B-          Energy      13.10.2009             04.06.2014          6.50 %                  EUR      320 Subordinated convertible                       Strike at NOK 45.72




                                    Bond spread development                                                                                                 Share price development

                          1 400

                          1 200                                                                                                         30
        Spread (in bps)




                          1 000




                                                                                                                     NOK per share
                                                                                                                                        20
                           800

                           600
                                                                                                                                        10
                           400

                           200
                                                                                                                                         0
                              Jan-11 Apr-11       Jul-11 Oct-11              Jan-12 Apr-12
                                     REC01             REC02                 REC03                                                       Mar-11           May-11              Aug-11           Nov-11           Feb-12




                                                 Financial (NOK m)                                                                                                            Sales & profitability
   Profit & Loss                                    FY-07         FY-08         FY09    FY-10    FY-11                                Q1-12
   Total sales                                      6 642         8 191        8 831   13 775   13 366                                2 138
   Total operating expenses                        (3 470)       (4 851)      (6 664) (10 518) (10 851)                              (2 111)            6 000                                                                  40 %
   EBITDA                                           3 172         3 340        2 167    3 257    2 515                                   27             5 000
   Depreciation & amortisation                       (585)         (750)      (2 633) (2 500) (2 280)                                  (396)                                                                                   30 %
   EBIT                                             2 588         2 590         (466)     757      235                                 (369)            4 000
   Income from associates                             (46)           (3)         (64)       0      (96)                                   0             3 000                                                                  20 %
   Net interest                                       251           (77)        (230) (1 100)     (642)                                 (95)
   Other financial items                             (816)        1 929         (177)   1 898      942                                 (223)            2 000                                                                  10 %
   EBT                                              1 978         4 439         (937)   1 555      439                                 (687)            1 000
   Non-recurring income/expenses                        0           (61)      (1 510)     364   (9 743)                                 428                                                           0%
   Taxes                                             (644)       (1 314)         100     (929)    (726)                                  50                  0
   Net income                                       1 334         3 064       (2 347)     990 (10 030)                                 (209)
                                                                                                                                                        (1 000) Q3-10Q4-10 Q1-11Q2-11Q3-11 Q4-11Q1-12 -10 %
   Balance Sheet
   Fixed assets                                    10   362      22 982      25   436       26 586        15   425              14     515                              Total sales        EBITDA             EBITDA margin
   Cash and cash equivalents                        5   795         497       1   688          849         1   596               1     882
   Equity & minority interests                     11   757      16 512      16   909       22 151        12   192              11     573                                            Leverage
   Total interest bearing debt                      2   797       6 595      11   977        8 786         6   272               6     064
   Total assets                                    17   945      30 209      34   135       36 865        24   470              22     850               10 000                                                                5.0

                                                                                                                                                          8 000                                                                4.0
   Market capitalisation                          136 431        31 883      16 386         20 850         5 329                     3 017
   Net interest bearing debt                       (2 999)        6 098      10 289          7 937         4 676                     4 182                6 000                                                                3.0
   Enterprise value                               133 433        37 981      26 675         28 787        10 005                     7 199
                                                                                                                                                          4 000                                                                2.0
   Cash Flow
   Funds from operations (FFO)                      3 243         2 776    1 456             3 839         3 010                       588                2 000                                                                1.0
   Change in working capital                         (188)         (859)    (170)           (1 355)           87                       140
   Operating cash flow                              3 055         1 917    1 286             2 484         3 097                       728                       0                                                             0.0
   Capital expenditures                            (4 302)       (9 748) (11 137)           (4 451)         (729)                      (92)                          Q3-10Q4-10Q1-11Q2-11Q3-11Q4-11Q1-12
   Dividends paid                                       0             0        0                 0             0                         0
   Free operating cash flow (FOC)                  (1 247)       (7 830) (9 851)            (1 967)        2 368                       636                        2m
                                                                                                                                                                 1 ro ll EB ITDA               Net debt          Net debt to EB ITDA (x)

   Key Credit Ratios                                FY-07         FY-08           FY09       FY-10         FY-11                     Q1-12
   Sales growth                                      53 %                                     56 %           -3 %                     -48 %
   EBITDA margin                                     48 %          41 %            25 %       24 %          19 %                        1%
   EBIT margin                                       39 %          32 %            -5 %        5%             2%                      -17 %                             Debt maturity schedule
   EBT margin                                        30 %          54 %           -11 %       11 %            3%                      -32 %
   Enterprise value to EBITDA (x)                    42.1          11.4            12.7        8.8            4.0                       6.3
                                                                                                                                                         3 500
   Total debt to EBITDA (x)                            0.9          2.0            5.7            2.7           2.5                     5.3              3 000
   Net debt to EBITDA (x)                             -0.9          1.8            4.9            2.4           1.9                     3.7
   FFO to total debt                                 116 %         42 %           12 %           44 %          48 %                    35 %              2 500
   FFO to net debt                                  -108 %         46 %           14 %           48 %          64 %                    51 %              2 000

   EBITDA net interest (x)                              neg.       43.4             9.4           3.0           3.9                      0.3             1 500
   EBIT net interest (x)                                neg.       33.6            -2.0           0.7           0.4                     -3.9             1 000
   EBT net interest (x)                                 neg.       57.7            -4.1           1.4           0.7                     -7.2
                                                                                                                                                          500
   Total debt to capital                              19   %       29   %         41   %         28   %        34   %                  34   %               0
   Net debt to equity                                -26   %       37   %         61   %         36   %        38   %                  36   %                        2012     2013     2014       2015        2016      2017   2018-
   Equity to total assets                             66   %       55   %         50   %         60   %        50   %                  51   %
                                                                                                                                                                                                                                 >
   Equity to capital                                  81   %       71   %         59   %         72   %        66   %                  66   %
                                                                                                                                                                      B ank     Co nvertible     B o nds     Leases

   EBITDA 12 months rolling                         3 172         3 340           2 095       3 257        2 515                      1 140
   FFO 12 months rolling                            3 243         2 776           1 456       3 839        3 010                      2 130




                                                                                                                                                                                                                               2
Norwegian HY Update




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 We, the authors of this report, hereby confirm that notwithstanding the existence of any such potential conflicts of interest referred to herein, the views
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All research reports are produced by SEB’s Credit Research department, which is separated from the rest of its activities by an Information Barrier; as such,
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Your attention is also drawn to the fact that:
Unless explicitly stated otherwise in this report, SEB expects (but does not undertake) to issue updates to this report following the publication of new
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Specific disclosures for institutional investors
The analysis and valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to
contingencies and uncertainties; different assumptions could result in materially different results. The inclusion of any such valuations, projections and
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Group that such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realized. Past performance is not a
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investment mentioned in this report.


Company specific disclosures and potential conflicts of interest:
A member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a) is not, and has never
been represented on the board of directors or similar supervisory entity of Renewable Energy Corp. (b) has from time to time bought or sold the securities
issued by the company or options relating to the company (c) SEB or its affiliates may act as a market maker or liquidity provider for the financial
instruments of the company (d) SEB or its affiliates beneficially own less than 1% of a class of common equity securities of Renewable Energy Corp., and
(e) SEB or its affiliates beneficially own debt securities of Renewable Energy Corp.



                                                                                                                                                            3
Norwegian HY Update




SEB is, or has within the last 12 months been or expects in the next 3 months to be, party to an agreement relating to the provision of investment banking
services to Renewable Energy Corp or an affiliate, or has received from it fees or the promise of fees in respect of such services.

The analyst(s) responsible for this research report (jointly with their closely related persons) hold(s) 0 shares, employees of SEB Enskilda, Oslo Branch hold
100 shares, and SEB Enskilda, Oslo Branch hold 100500 shares in Renewable Energy Corp. (not including shares held as hedge against derivatives
positions).



Explanation of Credit Research recommendations:
SEB derives its Recommendations from its appraisal of the Credit Rating of the issuer (itself derived from business risk profile and financial risk profile and
from other factors).

SEB uses the following recommendation system for the corporate bond market:
Overweight – over the next six months we expect a position in this instrument to exceed the relevant index, sector or benchmark.
Marketweight – over the next six months we expect a position in this instrument to perform in line with the relevant index, sector or benchmark.
Underweight – over the next six months we expect a position in this instrument to underperform the relevant index, sector or benchmark.

SEB uses the following recommendation system for CDS spreadsheets:
Buy – we expect the CDS to outperform the sector performance
Neutral – we take a neutral view on the CDS, and do not recommend either a buy or sell
Sell – we expect the CDS spreads to underperform the sector performance.

SEB also assigns credit ratings, definitions of which can be found on our website:
https://taz.vv.sebank.se/cgi-bin/pts3/mc6/MB/research.nsf?opendatabase&login

Methodology
SEB’s Credit Research assigns its credit rating to an issuer based on the assessment of an issuer’s business risk profile as well as its financial risk profile.
The business risk profile includes country risk, industry risk, competitive position, and profitability. The financial risk profile includes financial policies,
accounting, cash flow adequacy, capital structure and liquidity. The outcome of the assessment of the two risk profiles is weighed together for a final
overall rating.

In addition to SEB’s credit rating assessment, other factors considered in a particular issuer include the credit ratings assigned to a specific issuer by
independent agencies, the value and market price of its securities, macroeconomic factors such as interest rates, promised coupon or yield of the specific
instruments, and historical spread developments.
                                          rd
Credit Research Distribution (as of 23 April 2012)
                        A*               B*
Overweight             12               12%
Marketweight           79%              78%
Underweight            9%               10%

A* denotes recommendations for all companies covered

B* denotes recommendation for companies to which SEB has provided investment banking services in the last 12 months.

Recommendation History

Instrument                                          Recommendation          Date
Renewable Energy Corp.    16 Sep 2014 11.0          Overweight              27/10/2010
Renewable Energy Corp.    16 Sep 2014 11.0          Marketweight            04/05/2011
Renewable Energy Corp.    3 May 2016 N3M+435        Marketweight            04/05/2011
Renewable Energy Corp.    3 May 2018 9.75           Marketweight            04/05/2011

Recommendation changes by SEB Credit Research Analysts in the subject company over the past 12 months. If no recommendation changes were made in
that period, the most recent change is stated.




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