LDK admits clock is ticking on polysilicon IPO ambitions

LDK Solar says it has about a year to significantly drive down its polysilicon production cost, or else an initial public offering (IPO) for its polysilicon unit may be off the table – a potentially devastating outcome for the embattled Chinese PV giant.

Despite being China’s second largest producer of polysilicon after GCL-Poly, in addition to one of the world’s leading suppliers of PV cells and modules, LDK’s decision to diversify into polysilicon several years ago has thus far proved disastrous.

LDK has long touted its intention to spin off its polysilicon division, with an IPO originally slated for late 2011.

Only 10 months ago LDK – among China’s most heavily-indebted PV manufacturers – revealed plans to treble its in-house polysilicon capacity by the end of 2013 to 55,000 tonnes via a massive new plant in Inner Mongolia.

Since then, however, almost nothing has gone right for LDK – and especially for its polysilicon ambitions.

In disappointing financial results published on 17 September, LDK acknowledged that it produced less than 540 tonnes of polysilicon during the second quarter, and expects to notch up shipments of less than 1,400 tonnes for the full year.

The company admits that its production costs are nowhere near competitive with Western players like REC, Hemlock and Wacker Chemie. In response it has taken much of its capacity off line for technological upgrades.

Chairman Xiaofeng Peng says the upgrade will take “another six months or so”, and as a result second-half polysilicon output will be “very, very small”.

LDK is producing polysilicon for between $30-$35/kg, while the spot price fell to $21.90/kg in August, according to market researcher iSuppli.

“If we don’t get to the $20/kg level...the conditions for an IPO will be very difficult,” says chief financial officer Jack Lai. “Hopefully within a few quarters we’ll be ramping up our production and lowering our costs, and the global market will have recovered from this crazy price of low-$20s.”

If that happens, financial markets would “be much more welcoming” to an IPO. Otherwise, Lai says, “it’s going to be very difficult”.

The fortunes of LDK’s polysilicon unit may also depend heavily on whether the Chinese government decides to impose anti-dumping sanctions on US, EU and Korean polysilicon producers, as it has threatened to do.

Given the parlous state of its finances, but also its powerful local political support, many industry observers look to LDK as a test case for the future of the Chinese PV industry – including just how far the government will go to sustain national champions.

Chairman Peng reveals that LDK is in “very detailed” discussions with two “strategic investors” who may be willing to buy a significant stake in the company – and earlier stage negotiations with several more.

In a conference call, Peng would not be drawn on whether the investors were utilities, energy groups or financial institutions, revealing only: “I will say they are very big companies, very well capitalised, and all very familiar with our strategy and business.”

Having fired about 12,000 people over the past year – leaving with a headcount of about 16,000 – LDK does not plan any more major restructuring actions in the near future, Peng says.