Integrated solar energy company Renewable Energy Corp. ASA (REC.OS) Friday said it will have to make adjustments to its 2010 wafer contracts, which will weigh on earnings, and reiterated that 2009 silicon output targets remain challenging.

In a trading update released in conjunction with the launch of a EUR300 million convertible bond to underpin REC's corporate spending, the company warned that 2010 earnings before interest, tax, depreciation and amortization will be affected adversely as its customers renegotiate wafer contracts due to the market downturn.

At 0810 GMT, REC shares traded down NOK2.93 or 7.23% to NOK44.11, outstripping the 1.24% decline on Oslo's OBX index, but above the previous 12-month low of just below NOK40.

"It is likely that the present weak market will continue in 2010, and it is therefore in REC's best interest to make additional contractual adjustments related to 2010," it said. The company has already adjusted certain wafer contracts in 2009 to help ailing customers.

One Oslo-based analyst, who preferred not to be named, said the share fall "is a bit surprising".

"Everyone knows the solar markets are a bit rough. That's what REC has been saying for months. They have already said they've renegotiated wafer contracts in the second half of 2009, and you'd be very bullish if you expected those to recover in 2010," he said.

He added that some may have been surprised by the convertible bond issue, although the intention had been communicated by REC at various points in the year.

Meanwhile, REC said the ramp-up of its Silicon III project continues. There is no change in the schedule and it ceded that reaching its full 2009 production targets remains challenging, as announced at the second quarter results presentation.

But it added: "The experience with the fluidized bed reactor technology (at Silicon III) remains positive and the potential of the process and the quality of the product have been confirmed."

REC said the market has started to demand additional volumes of solar modules for delivery in the second half of 2009, suggesting a recovery is on its way, but noted prices still remain under pressure.

Meanwhile, its integrated Singapore project continues to trend toward lower costs compared with the initial investment plan, because of calmer construction markets. Ramp-up there is due in the first half of 2010.

The company said it is continuously monitoring its capital structure and potential additional funding needs.

Web site: www.recgroup.com

-By Elizabeth Adams, Dow Jones Newswires; +44 (0) 20 7842 9386; elizabeth.adams@dowjones.com