China, Solar

LDK Controversy Ruffles Investors in Chinese Solar Firms

October 17, 2007 (New Energy Finance) – Since debuting on the New York Stock Exchange debut last spring, wafer maker LDK Solar has been among the top performing Chinese solar stocks. As recently as 26 September, the company’s market capitalisation was USD 7bn on a share price of over USD 70.Then came charges from the company’s former financial controller that the company was giving an incorrect view of its accounts, by exaggerating how much processed polysilicon it had on its shelves. Management vigorously denied the claim but in less than two weeks LDK shares lost nearly half their value.

The stock bounced back somewhat at the start last week. But then, last weekend, came a report that the former controller had taken his complaints directly to the US Securities Exchange Commission. Specifically, according to the Wall Street Journal, he has now charged that LDK’s book inventory was almost 86% more than the actual physical inventory in its warehouse as of 31 August. And he claimed that LDK’s customers are returning the company’s product at a substantially higher rate than the company has acknowledged.

Again, LDK management has disputed the charges and says that the former executive does not have the scientific knowledge to understand how the company even uses processed silicon.

The controversy has clearly left LDK with a black eye. The question now is will it puncture Western investor confidence in other Chinese solar firms? So far, the evidence suggests not. Shares in other solar equipment makers Suntech, Trina Solar, JA Solar, and others have generally held steady as LDK has struggled. If nothing else, the current controversy seems to cry out for greater transparency generally in the solar sector on the size, scope, and pricing of processed polysilicon procurement contracts.

In Glasgow last week, the British Wind Energy Association convened its annual conference. Among executives addressing attendees, there was general consensus that the current global shortage of wind turbines will not abate prior to 2010. Inevitably, the question of China’s surging manufacturing capacity was raised. But the conventional wisdom is that China will have its hands full meeting domestic demand. Also, existing licensing agreements will prevent manufacturers there from exporting too many of their turbines. Or so the executives of these Western firms say.

In Washington, progress has ground to a halt on the mammoth Energy Bill that Democrats hope to push through Congress and, ultimately, have President Bush sign into law. The House of Representatives and the Senate have passed competing versions of the bills containing radically different measures. If the most aggressive provisions in both versions are adopted, the US could overnight vault from being a clean energy policy laggard (at the federal level) to a global leader.

But first the two chambers must agree on a unified version of the bill. Typically, that involves the formation of a so-called “conference committee” tasked with hammering out a compromise version. But disagreements over the bill are so strong that Republicans have reportedly blocked the creation of such a committee. As a result, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid will now sit down behind closed doors to produce a single bill on their own, then bring it back to both chambers for approval.

In the short run, this is probably good news for clean energy backers. Pelosi and Reid should be able to work more expeditiously than an unruly committee might have. But looking further ahead, the inability to execute the simple convening of a conference committee suggests a highly bruising fight once the legislation does reach the floor. And then there is that small matter of securing Bush’s signature.

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