Inventory allegations only paint a partial picture - LDK

By Terry Wang and James Morschel

Shanghai. October 23. INTERFAX-CHINA - Allegations of misrepresented inventory figures made by a former employee of LDK Solar Co. Ltd., a large Chinese-based solar wafer manufacturer listed in the United States, hold some truth but only paint a partial picture of the company's inventory situation, a senior official with the company told Interfax today.

The company's former financial controller, Charley Situ, publicly alleged in late September that LDK Solar had an inventory discrepancy of 250 tons of polysilicon, and that inventory quality was poor.

When LDK Solar's Executive Vice President and CFO Jack Lai spoke with Interfax today, Lai stated that the information released by Situ is "authentic and accurate, but offers only a partial picture," and described Situ as a "disgruntled employee".

Lai is quite certain that there is no problem with the company's raw material, and argued that the large wafer supply agreements it has recently signed demonstrates that production is normal.

Since Sept. 27, LDK Solar has signed agreements to supply wafers to Mosel Vitelic, Solartech Energy, Chinalight Solar, Solarfun Power and Canadian Solar. Taken together, the five agreements are valued at around $1.35 billion.

"We are supplying solar wafers to the world largest solar cell makers, and orders have already been signed for wafer deliveries in 2008 and 2009. If we really have a problem, would such companies still be relying on us for their wafer supplies?" Lai stated.

LDK Solar's first official response to the allegations came on Oct. 4, with the company releasing a statement saying that its management team and board of directors had formed an internal committee to investigate the allegations, but that no material discrepancies had been found. The company also stated that the allegations made by Situ had no merit.

At the same time, the company also asked an independent auditing firm, KPMG, to conduct a separate, independent review of its inventory.

Lai said that the audit is still being carried out, and that the company will announce the results when it is complete.

Following the allegations, LDK Solar's share price slumped considerably from a peak price of $73.95 on Sept. 27 to $37.26 on Oct. 8. Its share price did rebound when it refuted the allegations, only to fall again soon after. LDK Solar's stock closed at $35.68 last Friday.

However, the approximately 50 percent fall in the company's share price has not yet led all investment bank analysts to downgrade their ratings for the company.

Jesse W. Pichel, a clean energy analyst with Piper Jaffray, maintained his "Outperform" rating for LDK Solar in a report released on Oct. 4, and Needham & Company upgraded their rating for the company to "Strong Buy" on Oct. 10.

In addition, the company has also started construction of a polysilicon production plant in its base city of Xinyu in Jiangxi Province. The company expects that the project can attain an annual polysilicon production capacity of 6,000 tons by the end of 2008, and 15,000 tons by the end of 2009.

During the telephone interview, Lai said he is quite confident about the company's ambitious development plan. "We will make progress at a pace of 100 percent growth annually," Lai said. According to the company's plan, it will reach solar wafers production capacity of 400 megawatts by the end of this year, 800 megawatts by the end of 2008 and 1,600 megawatts by the end of 2009.

LDK Solar was incorporated in July 2005 and launched its IPO in New York in June this year. Its IPO raised $469 million in total, the most capital ever to be raised by a Chinese solar power companies in such a fashion.

As of June 30, the company had an annual solar wafer production capacity of 300 megawatts, making it the third largest supplier in the world. During the first half of this year, the company earned a net income of $53.28 million.