SolarWorld to take major impairment charge on restructured polysilicon contracts

February 4, 2014
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SolarWorld said in a statement that it had reached an agreement with a long-term “raw material” supplier to restructure supply contracts that would result in impairment charges in the “double-digit million Euro amount.”

The term, ‘raw materials’ normally applies to only high-purity polysilicon required for solar wafer production as well as long-term supply contracts, as legacy from polysilicon shortages in the last decade.

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The company said that the restructured deal had led to “a revaluation of prepayments and/or repayment claims from the long-term supply contracts in the balance sheet.”

Traditionally, long-term supply contracts included ‘take or pay’ clauses as well as hefty, multi-million dollar deposits that could be forfeited on the back of renegotiated contracts before such contracts legally ended. Large deposits to secure supply remain on a company’s balance sheet until the contract ends or adjusted on contract expiry.

SolarWorld noted that the restructured supply deal would have a positive short and medium term impact on its overall liquidity and that the new agreement secured future supply requirements.

Only very recently (January 29, 2014), polysilicon producer, Wacker Chemie, said it would benefit from a one-time windfall of around €115 million due to the restructuring of a supply contract with an undisclosed solar PV customer.

Wacker noted that the restructured supply deal involved recognising retained advance deposits as well as damages. However the customer would be retained but delivery volumes and polysilicon prices had been adjusted.

However, in March, 2013 another major polysilicon supplier to SolarWorld, Hemlock Semiconductor was reported to have filed a law suit against SolarWorld’s subsidiary, Deutsche Solar in US courts over alleged failure to honour a polysilicon ‘take or pay’ contract. The disputed supply contract discrepancy was said to be valued at US$83 million.

SolarWorld had significantly cut wafer, cell and module production in Germany and the US during the last two years due to rapidly falling module prices caused by global overcapacity and mounting losses that resulted in a major debt restructuring move and investment from Qatar.

Its recent acquisition of the PV manufacturing operations of Bosch in Germany resulted in Bosch paying SolarWorld to take-over the operations.

In recent years, restructured polysilicon supply agreements have become more flexible in both supply and pricing arrangements due to overcapacity in the polysilicon production. Pricing has been both lowered to near spot market levels as well as the elimination of take or pay clauses.

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