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

Recording Demonstrates Confusion About LDK Solar Inventory Quality, WSJ Reports

By , Money Morning •

From Staff Reports

Officials at solar-cell-maker LDK Solar Co. Ltd. (LDK) were apparently confused about the quality of the silicon in the firm's inventory- just as an ex-finance official has alleged- according to an audio recording of an internal conference call obtained by The Wall Street Journal, the newspaper reported yesterday.

LDK, based in southern China's Jiangxi province, makes the silicon solar wafers used to convert sunlight into electricity. But it depends on a mix of both new and recycled batch silicon, and that requires the company to be very specific about the source and the age of the silicon that's in its inventory.

However, in e-mailed messages to regulators and to KPMG, Charley Situ, LDK's former financial controller, has accused the solar-cell maker of reporting inflated figures for its silicon feedstock, The Journal reported. Specifically, Situ alleges there is a discrepancy between LDK's reported inventory and the amount of "usable" silicon that's actually available.

And The Journal says the recording of the Sept. 13 conference call that it obtained seems to support the contention of Situ, the ex-LDK official. In the recording, Situ and two other LDK officials- Yao Qiqiang, the vice president of accounting, and Liu Yizheng, an accounting manager- openly discussed the quality of the "feedstock" silicon with Jack Lai, LDK's finance chief.

On the call, Situ estimates that two-thirds of the feedstock in question is older than 180 days, making it unsuitable for use producing the solar-panel wafers- something LDK should reflect by taking a write-down that will appear on its financial statements, affecting its financial position, the newspaper reported.

After finance chief Lai ask why that feedstock isn't usable, account manager Liu explained that the inventory is leftover bits of the silicon that had already undergone testing by the production team. According to The Journal, Lai then said that "I think you should do some careful data analysis" to determine the quality of the inventory.

Yao said that "what the accounting department needs to do is a categorization of the inventory in terms of life and ways in which it was purchased...and hand it over to the technology team for a review. Let them decide whether it is usable or not," stated the newspaper report.
LDK says that Situ's allegations are without merit, and described him as a disgruntled ex-employee who was fired. He says he resigned, the newspaper reported.

In its initial public offering on June 1, LDK raised nearly $500 million. By Sept. 26, the shares hit their all-time high of $73.95, leaving the company with a market value of $1.3 billion- nearly a three-fold increase. It paved the way for a handful of other China-based solar-power firms to go public, as well. [To read Money Morning's full report on all the China-based solar-energy firms that have gone public in the past year, please click here. The report is free of charge.]

LDK's shares plunged $3.24 each, or 7.24%, to close at $41.51 yesterday (Thursday). Some U.S. shareholders are traveling to China to visit the company's headquarters to assess LDK's prospects, the newspaper reported.

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