Monday, July 21, 2008

GT Solar, from an LDK Long's Perspective.

What does a GT Solar IPO mean for LDK? Updated 07/23/08.

Well first some basic info.

The ticker will be SOLR, and 30,300,000 shares have been priced at $16.50. The company gets nothing, the money goes to Investors via a Dividend. So, someone is collecting cash; about $500 Million; and the company is left with a $2.3 Billion Market Cap. It would be the largest Solar IPO in the US.

Here's the Prospectus.


Moneycurry (link below) points out the separation of Divisions of the Company, these being the PV Business and the Polysilicon Business.

Per Moneycurry, the PV Business has so far generated all of GT's revenues, with DSS Units generating 86% of '08 Revenues. Ok, that's fine. The PV Business is pretty basic stuff in comparison to the manufacture of Poly.

For the Poly Business, Moneycurry makes the statement "Although company had delivered reactors to one customer but due to its revenue recognition terms, company has yet to generate any revenues from this business segment, but is expected to generate significant revenues from this segment from current year onwards." So, how to interprete this? It seems that what they are saying is that they've made deliveries, but the equipment is not be up and running beyond a predetermined threshold.


The question is, will GT succeed in getting their system up and running for LDK?


Well, this question has been plaguing LDK for some time. At 62% of Sales (See Hoovers, below), LDK is the largest customer of GT Solar, not only for PV Equipment, but for Poly equipment such as CVD Reactors, and Converter Reactors.. The question has been, will LDK be able to produce Poly? Jesse Pichel, of Piper Jaffery, has consistently shed doubt on the possibility of success at LDK, and thus, maintains a sell rating on the Company. So, here we have Piper Jaffery and associates, taking part as Managers in this IPO of GT Solar as if it were a credible company, and yet simultaneously holding a Sell Rating on LDK Solar on the basis that its GT Solar-based Poly Production is at a very high risk of catastrophic failure.


This leaves room for several interpretations.


I'll start with the possibility that Jesse is correct, and LDK will fail either in their TCS Gas production as Mr. Pichel implied during a recent LDK Investor's Conference, or that LDK will fail in implementing a full "closed loop" Polysilicon Production Cycle, as he has implied previously.

In these cases, if Jesse is correct and LDK fails, then GT Solar will be a loser. Whether LDK fails due to TCS production issues* (provided by LXE and CDI), or due to a failure to implement their Closed-Loop Reactor System (provided by GT Solar), GT Solar is in big trouble. Remember, LDK is 62% of GT's Sales. It doesn't matter how LDK might fail, if they do, then SOLR gets hit by a meteor.

And yet, here we have PJC taking part in the IPO of a company which is highly dependent on a Trading Partner which their own Analyst is suggesting will crash and burn. Does PJC think that they are selling shares of a stock that will go up, or down? I'm no Lawyer, but I can't help but think that there might be some legal jeopardy in selling shares in an IPO of a company where prior knowledge of impending failure of that company is had by the seller, particularly if the cause of that failure is due to the known inability of that company (GT Solar, in this case) to successfully fulfill their own contracts for equipment and support.


Of course, I wouldn't believe that an Outstanding Company like Piper Jaffery would take part in any IPO of less than Stellar Quality. LOL!


This brings us to another possibility; that LDK will succeed as planned in implementing their complete solution, from TCS to Poly. In this case, GT Solar, soon to be a Public Company with the responsibilities associated with the Sale of those Public Shares, will have delivered on their agreements with LDK, but also with other Companies with whom they've made similar agreements such as The Silicon Mine B.V. of the Netherlands, and Aziel Holdings Limited of Russia.

It is this case which would support the Integrity and Credibility of Piper Jaffery in their backing of GT Solar, and in their part in this upcoming IPO. It is also the most profitable outcome for everyone involved, as GT Solar is in a sweet spot in the Poly Production Industry. If they succeed, then they will stand nearly alone** in the poly production equipment niche in a rapidly growing Solar Industry. Though there are other companies that have the technology to do what GT is working to do, those companies are typically focused on their own production of Silicon, as opposed to selling equipment to others that would like to.


Only time will tell, of course. The Stakes are high, not only for all the parties directly involved in LDK and GT Solar, but also for all of those parties that are depending on the multiple GigaWatts worth of Solar Wafers that are due to be pouring out of LDK's Factory next year and beyond.



Other Sources of Info:

1. www.moneycurry.com - IPO Review
2. Article - GT Solar hopes sun will come out this week
3. www.hoovers.com
4. www.zachstocks.com
5. Article - Solar technology company opening Houston engineering office



* According to this article by Photon Magazine (sadly, in incomplete form), the key incredient to the production of poly is not in the capacity for TCS production, but is in the Converter Reactor used for the recycling of STC to TCS gas from the output of the CVD Reactor, in which the Silicon Crystal is being grown. It is this critical piece of the Chemical Process that is being provided by GT Solar, and it is GT Solar that is on the hook for the successful implementation of their own equipment.

** Moneycurry does make one error when they claim that GT Solar has no Competitors. In fact, per GT Solar, they do have a competitor by the name of "MSA Apparatus Construction for Chemical Equipment Ltd." Oddly enough, LDK also seems to have a relationship with this company out of Germany, and has been buying up "MSA Reactors" for their 1000MT Poly Plant.



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