UPDATE 2-Hoku posts wider-than-expected Q4 loss; ends loan deal

(Recasts, adds analyst comments, share movement)

By Biswarup Gooptu

Bangalore, May 13 (Reuters) - Fuel cell parts maker Hoku Scientific Inc (HOKU.O) posted a wider-than-expected quarterly loss and said it ended an agreement with Merrill Lynch to borrow up to $185 million, sending its shares down as much as 9 percent.

Hoku, which plans to expand its polysilicon manufacturing and photovoltaic systems installation service business, said it expects to continue to incur losses for the foreseeable future as it sees costs to increase significantly.

Hoku and Merrill had agreed in December last year for the funding to set up a polysilicon plant in Pocatello, Idaho.

The company now plans to raise up to $110 million through a stock and warrants offering and has filed with U.S. regulators for the same, it said in a statement.

"I wasn't expecting the Merrill financing to end... But I don't consider an offering to be a negative thing for them," Americas Growth Capital analyst Zack Lesko said by phone.

Hoku might have felt that the debt financing cost would be too burdensome to its cash flow in its early phase, he said.

Hoku said it will need $112 million for engineering, procurement and construction to complete pilot production at the new plant in the fourth quarter of 2008.

The company anticipates the plant, which is expected to start pilot production in October, to cost about $390 million.

BIG MISS

The company's fourth-quarter results missed market expectations by a wide margin.

For the latest quarter, Hoku reported a net loss of $2.1 million, or 12 cents a share, compared with a net loss of $2.1 million, or 13 cents a share, in the year-ago period.

Excluding items, it reported a loss of 11 cents a share.

Analysts on average had expected a loss of 5 cents a share, excluding items, according to Reuters Estimates.

Service and license revenue fell 45 percent to $621,000.