Thursday, December 13, 2012

Zombie LDK Stops Production, Fires Thousands


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Zombie LDK Stops Production, Fires Thousands
by Sneha Shah

LDK Solar (NYSE:LDK)which used to be the biggestsolar wafer producer has completely stopped production ofpolysilicon and sharply reduced shipments to preserve cash. Thecompany is effectively bankrupt and surviving due the largesse ofstate owned Chinese banks which have given $3 billion in loans tothe company. LDK has almost no chance of paying down thismonstrous debt given that it has been operating on negative grossmargins for the last few quarters.

LDK cost structure is way too high compared to itscompetitors
LDK has a much higher cost structure in most solar segments. Itswafer processing cost is 25c/watt compared to 12c/watt forRenesola (NYSE:SOL),its polysilicon cost is around $30/kg compared to $23/kg forRenesola and $17/kg for GCL Poly (3800.HK).Given that even Renesola and GCL are making losses, the situationfor LDK is dire. LDK has diversified into production of cells,modules as well as solar plant construction. However these effortslike the others have also failed spectacularly with its Germanacquisition also near bankruptcy.

LDKs Giant Polysilicon Plant stops Production
LDK’s biggest failure has been in building up its polysiliconproduction. The plant took too much time and too much money to getbuilt and never managed to reduce its costs to a competitivelevel. Despite building a plant with 15000 tons of capacity makingit one of the top polysilicon players, the company has nevermanaged to ramp production to make decent profits. Not its plantlies idle as polysilicon prices have crashed to $15/kg almost halfthat of its cost of $30/kg. It remains to be seen whether thisplant will ever restart. The only chance for it to do that is ifthe Chinesegovernment imposes duties on imports of polysilicon.
LDK Management has no clue what to do
The Management of LDK Solar has performed disastrously right frombuilding the polysilicon plant to diversification into thin filmsolar panels (Best Solar), acquiringsolar system companies (Germany, USA), managing debt etc.They kept on spending money and building capacity even as thewhole house of cards collapsed around them. Even as recently aslast year , they signed a deal to build a massive polysiliconplant in China’s Inner Mongolia province even as they could notrun their poly plant profitably. The company had forecast morethan $2.5 billion in sales at the beginning of the year and nowthey have reduced it to less than $1 billion.

LDK has fired thousands of employees this year and willcontinue to do so
The company in its latest quarterly results reported a sharp decline in cash as the company continued to burn cash. LDK management has fired 2500 workers as its utilization fell sharplyand has fired almost 9,000 workers or 40% of its workforce thisyear. Given its uncompetitive structure, the company will continueto fire workers. LDK has almost 4 GW of wafer capacity and hasused less than 50% of that capacity this quarter.

LDK is Bankrupt but the Chinese Government does not wantto let go
LDK is bankrupt and one can easily make that out going throughits balance sheet. The company has almost $3.7 billion of plantassets which in reality are of much lower value. If the company takes even a 10% asset writedown of its PPE, it will have anegative worth given that it has only $50 million of equity listedon its balance sheet. LDK has more than $3 billion in loans and ithas been reported that a small bank Shanghai Rural Commercial Bankfor overdue loans worth 100 million yuan has already sued LDK torecover that loan. LDK recently sold a 20% equitystake for a pittance to a state owned vehicle Heng Rui XinEnergy and changedits management structure. The Xinyu government has alsogiven it a grant. But given its massive problems all loans andgrants will only prolong the pain given that LDK has no chance ofcoming out of this downturn unless a miracle happens.

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1 comment:

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