Tags: Alternative Energy, Asia, China, Chinese Investments, Solar Energy

LDK Shares Plunge Another 26% Due to Worries, Barron's Report

By , Money Morning •

From Staff Reports

Shares of high-flying LDK Solar Co. Ltd. (LDK) plunged 26.4% to close at $37.50 yesterday (Monday) - extending losses from last week - based on continued concerns that the China-based maker of solar wafers has serious production problems.

The shares of the Jiangxi, China-based LDK are now trading at less than half their 52-week high of $76.75 a share. However, they remain about 39% above their June IPO price of $27 a share. LDK's stock plunged 26% last week after news leaked out that a former financial controller had challenged LDK's inventory controls.

The shares of other solar power developers - until now, an apparent emerging strength for China - fell in response yesterday. China Sunergy Co. Ltd. (CSUN) dropped 9.52% to close at $10.08; Yingli Green Energy Holding Co. Ltd. (YGE) declined 9.8% to $28.11; and Suntech Power Holdings Co. Ltd. (STP) fell 5.17% to finish trading at $38.85.

LDK has said its own internal investigation found no material discrepancies in its financial statements, but many analysts rejected that statement as insufficient because the investigation was conducted internally.

Making matters even worse for LDK was the fact that the widely read Barron's reported this weekend that it interviewed (through an interpreter) someone familiar with the company's production operations. And its findings weren't encouraging.

"That person said that the company's silicon ingots were indeed so impure that a recent production run had produced tons of them that were too contaminated for technicians to even analyze with instruments," Barron's reported. "The company says it knows of no such problems."

Early last Thursday, LDK said it conducted the internal investigation after its former financial controller, Charley Situ, said the company has been inconsistent in reporting its inventory. Situ, who was fired in September, made the allegations a few days earlier, LDK said. The company has asked an independent firm to conduct its own audit.

CIBC World Markets analyst Adam Hinckley has downgraded the stock to "Sector Underperformer," or "Sell," from "Sector Performer." According to Hinckley, investors should sell LDK's shares and wait for more details about the accusations that Situ made - and for more proof from LDK about the audit it said it conducted to prove it did no wrong.

"We view the [LDK] press release as unsatisfactory, as it does not disclose the specifics of the allegations and leaves questions unanswered," Hinckley wrote in an investment note to clients.

Clay Sumner, an analyst for Friedman Billings Ramsey, said the controversy could hurt LDK's efforts to boost its capacity. And for investors who like the solar-power sector - it does have great promise - deep problems at LDK could open the door for rival MEMC Electronic Materials Inc. (WFR). That could turn MEMC into a real investment opportunity, if the LDK situation is as bad as it now seems.

LDK, which makes multicrystalline solar wafers used in solar panels, said last Wednesday it had signed a five-year contract to supply those types of wafers to Taiwan-based Solartech Energy Corp. Contract pricing is fixed for the first three years of the deal, during which LDK agreed to deliver about $224 million worth of the wafer products to Solartech.

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