Lawsuit threatens SolarWorld liquidity

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On October 28, a subsidiary of SolarWorld, Deutsche Solar GmbH, received notice that its motion to reconsider a decision by the United States District Court for the Eastern District of Michigan regarding antitrust defenses was denied.

News of this sent shares of SolarWorld AG tumbling to less than half their value during the day yesterday, although they regained slightly by the end of the day, ending up 27% lower. This may have had something to do with a statement issued by SolarWorld, where the solar manufacturer said, "The partial decision of the court on antitrust defenses is no judgement, but only relates to one of several defenses of equal value against the complaint and is of technical nature."

It appears the antitrust defense is the leading defense in the case, however, based on what SolarWorld has written in previous earnings reports. pv magazine has contacted the company to see what other defenses it has. At the time of going to press, it had not responded.

Threat to continued existence

In the statement released yesterday, SolarWorld added that it does not "estimate the risk situation higher than at the beginning of the proceeding in March 2013 and has acknowledged the risk continuously in its financial statements."

Indeed, in its 2014 earnings report, released this March, it stated, "If courts should decide that the silicon supplier is entitled to damages from our subsidiary SolarWorld Industries Sachsen GmbH [formerly Deutsche Solar GmbH], this would have a considerable negative impact on the company’s liquidity position, possibly even threatening the company’s continued existence."

In its first half 2015 report, it further wrote, "On the basis of external legal opinions, the company believes that the silicon contracts in question violate European antitrust law, which could mean that the purchase obligation as well as the contracts per se might be null and void. At this point in time the outcome of the proceedings cannot be estimated. Depending on the outcome, however, it is possible that SolarWorld Industries Sachsen GmbH might be liable for damages up to the claimed amount."

Solar analyst at Bloomberg, Jenny Chase told pv magazine SolarWorld’s situation appears "as if it could be serious." She adds, "SolarWorld’s H1 2015 report said that ‘the silicon supplier’ (presumably Hemlock) claims USD 676 m on the basis of the take-or-pay contract agreed by SolarWorld’s wafer subsidiary Deutsche Solar. Since SolarWorld has cash assets of $141.4m as of the latest filing, this is significant."

Four agreements

On March 7, 2013, Hemlock filed a case against Deutsche Solar claiming it had breached four take-or-pay long term supply agreements for polysilicon. It said under the first agreement, for 4.8 million kg of polysilicon and active between August 30 2005 and December 31, 2015, Deutsche Solar made regular purchases on a monthly basis between 2005 and 2012. However, in 2012, Deutsche Solar reportedly tried to suggest material pricing and purchase quantity concessions, with the threat that if they were not made, it would not meet its contractual obligations.

According to Bloomberg, SolarWorld CEO, Frank Asbeck was then said to have threatened to put Deutsche Solar into bankruptcy, before repurchasing its assets for a de minimus amount to free it of the agreements, if the concessions were not made. SolarWorld has told pv magazine this is not the case, however.

The four agreements, according to court documents, are as follows:

  • Agreement 1: 8.4 million kg of polysilicon to be delivered between August 30, 2005 and December 31, 2015
  • Agreement 2: 4.8 million kg of polysilicon to be delivered between June 10, 2006 and December 31, 2018
  • Agreement 3: 9.99 kg of polysilicon to be delivered between June 27, 2007 and December 31, 2019
  • Agreement 4: 12 million kg of polysilicon to be delivered between January 1, 2010 and December 31, 2012

Hemlock said in the court documents that on the back of the agreements, it would have to expand its capacity, in order to meet Deutsche Solar’s requirements.

"Solarworld is arguing that the silicon contracts and therefore the purchase obligation are null and void," said Chase. "When the contract was signed the silicon manufacturer held all the power as there was a global shortage of silicon and stock prices of buyers were rising on contract announcements, and the Hemlock lawyers would have been trying to make it watertight."

She added that the price of polysilicon under the contracts would have certainly been several times the current spot price of $15.2/kg.

In the statement issued yesterday, SolarWorld said it aims to reach an agreement with Hemlock to continue delivery in the "expected further years of proceedings in the first and second instance that may follow." It concludes, "SolarWorld has achieved similar agreements with all its other silicon suppliers successfully."

The article was amended on October 5 to include a response by SolarWorld regarding Asbeck’s threat to put Deutsche Solar into bankruptcy.