Debt problems forcing GCL-Poly to sell wafer business, says CEO

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The planned sale by GCL-Poly Energy Holdings of its wafer business is due to its very high debt leveraged ratio, primarily due to the concentration of short-term debt, Zhu Gongshan, the company's CEO has said in an emergency investor call.

The surprise sale by GCL-Poly of its 13GW-sized solar wafer operations – the largest in the sector – has had the effect of spooking investors who have since started a run on the company’s shares.

In response, GCL-Poly took the unusual step today of holding an investor conference call to properly address investor concerns regarding the planned sale. 

“We need to address the key issues of divesting some of the manufacturing business in order to improve our leverage ratio and as you know, during the downturn of 2011, the industry is going through a difficult time and we would like to take this opportunity as the industry recover to resolve some of the balance sheet issues,” said Gongshan via and English translator on the conference call. 

The executive went on to say that the wafer production business was characterised by stable but small margins but was hindered by being capital and labour intensive, unlike its major polysilicon production business that was characterised as being higher margin, high barrier to entry and less capital intensive with new technology such as advanced Fluidised Bed Reactor (FBR) technology. 

“So, as we are proposing to divest our wafer business; we believe that that will substantially reduce our gearing and leverage and improve the financial standings of our balance sheet, which we believe will enhance the value of our shares in the long run,” added Gongshan. 

Furthermore the focus on polysilicon production with higher purity and lowest production costs would be augmented by adding the FBR technology to its polysilicon business, boosting both sales, ASPs and margins as the company believes the technology would exceed the higher standard quality levels found with the Siemens process but at much higher production costs. 

Gongshan noted that the company was interested in partnering in the future on FBR production. 

The two current leaders in FBR-based polysilicon production are REC Silicon and SunEdison Semiconductor, formerly part of MEMC before changing its name to SunEdison. 

Both polysilicon producers have joint venture FBR ambitions, with SunEdison Semiconductor recently beginning the ramp of a plant in Korea with a subsidiary of Samsung. 

REC Silicon is the major existing producer of FBR-based polysilicon and has signed agreements in China to license the technology to a smaller rival of GCL-Poly. The company also noted discussions were ongoing to establish a JV in the MiddleEast.

Gongshan also acknowledged that the company would have improve polysilicon quality overall, not least to meet growing demand as solar cells will require higher purity wafers to meet conversion efficiency roadmaps but also retains the ability to command the higher prices. 

“We need to guarantee abundance of high-quality solar materials for our downstream manufacturing peers in the wafer and solar modules, as we enter the era of high-quality, high conversion efficiency solar modules,” noted Gongshan. “And with our concentration in the polysilicon business, we are able to further widen the gap with our closest competitor and we will give up the lower end quota margin to our competitors.”

On the investment in bankrupt Chaori Solar, the GCL-Poly CEO noted that the company provided further channels to the downsteam market aside from PV module manufacturing, which included having an EPC and system business in China. 

Therefore the company did not expect to provide large amounts of finance to Chaori Solar to become profitable. 

The company also did not rule out selling its coal-fired electricity generating business to support lowering its debt ratio. 

However, the key transaction was deemed to be the sale of its wafer business, which was expected over time to support the view that the company was a high-tech polysilicon and chemistry company, demanding higher valuations from investment analysts. 

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