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LDK forced to stick to terms of 2008 wafer equipment deal

China's highest arbitration body has handed loss-making PV giant LDK Solar a setback, saying it owes nearly 298m yuan ($48m) to Beijing’s JYT Corporation for a production-equipment deal dating to 2008.

The China International Economic and Trade Arbitration Commission has determined that LDK must abide by the original terms of the agreement it made with JYT, which produces a range of manufacturing equipment for the PV and semiconductor industries.

LDK had agreed to buy furnaces from JYT for making multi- and monocrystalline ingots at its flagship manufacturing facility in Xinyu City, Jiangxi province. But, like many leading PV companies, it now finds itself with more production capacity than it can profitably employ.

“With regret, we were unable to take delivery of the ordered furnaces as scheduled from JYT primarily due to slower than expected industry growth, and the widely available capacity of other peers,” acknowledges LDK chief executive Xingxue Tong.

LDK will be forced to fork over 294m yuan in back payments, as well as 3.4m yuan to cover JYT’s arbitration fees, it says.

The ruling offsets -- and then some -- another made earlier this month by the same arbitration body, in which LDK won a long-simmering legal dispute with Canadian Solar regarding long-term wafer supply contracts struck in 2007 and 2008.

The global PV industry continues to try to unravel itself from many now-unrealistic contracts struck during the last boom period, when polysilicon prices were vastly higher than they are today, and manufacturers were scrambling to build out new production capacity.

After a devastating multi-year period of plummeting solar company valuations, Chinese solar stocks have soared over the past month on reports that Beijing will prevent local governments from propping up PV manufacturers. If enforced, the move may lead to a spate of mergers and bankruptcies seen as critical to the long-term health of the industry.

Even heavily indebted LDK, viewed as one of the most challenged of all major Chinese PV companies, has notched up a 27% increase in its share price over the past month.