A Solar Slap in the Face
By
Toby Shute
November 3, 2009
|
Until recently, LDK Solar (NYSE: LDK) and Q-Cells looked like best buddies.
Late in 2007, LDK agreed to provide the top European solar shop more than 6 gigawatts' worth of silicon wafers over 10 years, beginning in 2009. Q-Cells prepaid $244.5 million, representing around 10% of the contract value, to sew up the deal. That was common practice back in those days, when silicon was scarce and men were men. Suntech Power (NYSE: STP) signed a similarly supersized deal with Shunda, and Trina Solar (NYSE: TSL) hit upon its own treasure trove with GCL-Poly.
Q-Cells accounted for 20% of LDK's sales in 2008. The two companies formed a European joint venture, LQ Energy, earlier in 2009 to invest in solar projects together. Then the harmonious relationship came to a screeching halt.
Q-Cells announced Monday that it has terminated the wafer supply deal, pointing to a failure on LDK's part to fulfill its contractual obligations. LDK objects to this characterization of events, and has sought to block Q-Cells from pulling its prepayment. Clearly tensions have been simmering for some time now, as LDK has already gone to court in Berlin -- and lost.
You know all is not well in solar land when formerly friendly companies are turning against one another. This new spat follows a similar one in which China Sunergy (Nasdaq: CSUN) and REC are butting heads over a long-term wafer supply contract of their own.
While credit is flowing to many corporate borrowers these days, liquidity is still a delicate matter in the solar space, where many balance sheets remain strained. If Q-Cells successfully pulls its deposit (not to mention future business), things could get decidedly uncomfortable for LDK.
Like this article? Get our best articles delivered direct to your inbox at no cost. Sign up for Foolwatch Weekly by entering your email below.
Terms & Conditions
RSS Headlines
Fool UK