Monday, November 23, 2009

LDK Still Too Many Questions

LDK Solar (LDK) released financial results and here are a few things investors may worry about.
1. Accounts receivable are equal to 100% of the last reported quarters revenues. Does anyone pay a bill?
2. The balance sheet reads more like a financial institution than a high tech manufacturing enterprise. Prepayments to suppliers show up in both current assets and long term assets expecting to last longer than one year.
3. We now have inventories which are expected to be processed over one year from now. This in a company whose promise is fantastic growth.
4. Deferred income tax assets show up in both current assets and long term assets. Just what is this category all about?
5. Pledged bank deposits show up in both current and long term assets. The financial engineering of this company is getting overly complex.
6. They just recently “Sold a 15% ownership stake in 15,000 MT annualized capacity polysilicon plant to Jiangxi International Trust and Investment Co., Ltd. for RMB1.5 billion (equivalent to approximately US$219 million)” The deal closed just a few days before the earnings release. No mention as to valuation. Why was this deal necessary? Why should the shareholders be happy?

When you go back to the original press release issued through PR Newswire on Nov 17, 2009 announcing the 15% sale you find this explanation of who the purchaser is supposed to be.

“About Jiangxi International Trust and Investment Co., Ltd
Jiangxi International Trust and Investment Co., Ltd. is engaged in economic development in Jiangxi Province through the operation of financial trusts, management of enterprise assets restructuring, mergers and acquisitions, project finance, corporate finance, and other intermediary business, on behalf of the custody business, by bank deposit, interbank offered loans, or investment using its own funds, managing the financial lending and other business approved by the People's Bank.”

But hey LDK says they earned some $29 million this quarter which is a big turn around from previous losses. There was a big fat government subsidy of $13.8 million which drove half that number.

But the final point is this. If they just sold 15% of a key facility where is the capital gain or loss on the transaction? Have they adjusted or marked to market any valuations?

LDK just too many questions.