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.
