Mascotte's $250 million due diligence bill

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Days after announcing plans for a 300 MW solar cell plant in Taiwan, Mascotte Holdings Ltd. has revealed the HK$2 billion (US$258 million) due diligence mistake that means it is only now able to plan polysilicon production in the country.

Mascotte acquired a 50.1% stake in the Sun Mass Group – parent of Taiwanese poly producer Sun Materials – in July 2011 and went on to acquire the remaining shares six months later for a total outlay of HK$2.5 billion.

Mascotte’s plan was to start commercial production of polysilicon using the vendor’s proprietary hydrogen assist reductive combustion process, a closed loop system which feeds the harmful hydroflouric acid byproduct of the process back into the system.

But in an extraordinary annual report to the Hong Kong Stock Exchange today, Mascotte revealed the company still has yet to start commercial production of solar grade polysilicon 18 months on from acquiring Sun Materials.

As a result, Mascotte is having to swallow a HK$1.93 billion impairment to its 2013 figures, the most significant contributory factor to an eye-watering HK$3.03 billion annual loss for the year ended March 31, soaring from a HK$621 million loss 12 months earlier.

In the report, Mascotte’s directors point the finger at consultants who advised them on the acquisition of Sun Materials and ‘industry experts’ who failed to anticipate the poly production process would produce large amounts of hydroflouric acid unsuitable for storage in local holding tanks during Taiwan‘s typhoon period, from May to November.

The buyer had intended to start commercial poly production in the final quarter of 2011, storing any acid outside the typhoon season and developing a recycling and disposal facility in due course. But after reviewing production data generated in April 2012 the acid problem emerged and delayed production plans until the typhoon season had started, meaning a recycling plant for the acid would now have to be built in advance of commercial polysilicon production.

According to the annual report, the civil engineering works for the acid recycling facility were finished in February with the remaining works ‘in progress’ at the end of March.

The knock-on effect is the HK$1.93 billion impairment with the company now forecasting it will finally be able to start commercial polysilicon production at some point before the end of the year.

At least Mascotte was able on Friday to announce the 300 MW solar cell plant which it plans to develop jointly with solar manufacturer Hareon Solar Technology Co. as well as plans to develop solar projects with the Chinese company. After all, Mascotte has some catching up to do.