LDK Solar Uses Inventory to Pay Vendors

Source: Dr. Jason Tsai, Lilly Shen

Persons close to the company disclosed that some of the LDK Solar Co., Ltd (ADR)(NYSE:LDK) accounts payables have been paid up with its modules and wafers out of its stock inventory.  Apparently those products have been dropped into European markets shortly after transactions were completed. In order to receive quick cash turnaround prices were quoted at the port of entry as low as $0.52/watt for 225W module.

The rumors of last couple months about potential takeover by various entities, including SOEs, had not materialized. Outside the intervention by government the company has no real alternatives.  At SPVI, we had estimated LDK’s cash resources to last till end of September.  It is becoming clear that tier-1 value chain is trying to save financial resources and reduce expenses with aggressive moves.  Under those scenarios, it is not surprising that debt is being settled with inventory. Furthermore, number of companies had announced intent to lower levels of inventory and to reduce utilization rates. Outside of temporary reduction of labor costs due to mandatory time off , permanent layoffs  like one announced by Trina Solar Limited (ADR)(NYSE:TSL) have taken place, largest to date was announced by LDK early in the year. There has been limited amount of information disclosed on the rate of the utilization but wide, across-industry rate is suspected to be around 50%, with only couple names being quoted above it.