Silicon Deals SolarWorld Faces Massive Damages in U.S.

A U.S. court has ruled that SolarWorld, Germany’s biggest solar panel manufacturer, must pay substantial damages of up to $770 million to one of its suppliers over a dispute about a silicon contract. But the company has no way of paying the sums demanded.
Clouds ahead for SolarWorld.

A legal case in the United States could deal the fatal blow to struggling German solar-panel maker SolarWorld.

A court in Michigan has fast tracked a case by silicon manufacturer Hemlock Semiconductor which is suing a SolarWorld subsidiary for over $770 million over a supply agreement.

The court has not yet reached a final verdict, but Handelsblatt has obtained a copy of the court statement by civil court judge Thomas Ludington who writes: “Hemlock will be granted the damages it has demanded.”

The judge also told Hemlock to submit a list of its accrued claims over the years by July 22: the company claims SolarWorld signed supply contracts and did not then honor the deal. The court will then rule how much money SolarWorld does have to pay.

If SolarWorld does has to pay the full $770 million, it will struggle to find the money. The figure amounts to at least four times the liquid funds at its disposal.  And the firm has made no provisions for the worst-case scenario of a defeat. After restructuring, the company is still struggling under the burden of €217 million ($241 million) in net liabilities.

Investors have reacted with horror. Solarworld stock plunged by up to nearly 16 percent on Thursday.

In its annual report, SolarWorld, based in the west German city of Bonn, said losing the court case could have effects, which “endanger the continued existence of the company.”

Investors have reacted with horror. Solarworld stock plunged by up to nearly 16 percent on Thursday. Once a billion-dollar concern, SolarWorld’s stock exchange value is now less than €80 million. The company said it would lodge an appeal in the United States against a possible verdict. In the opinion of SolarWorld there are “anti-trust concerns” about the relevant supply contracts with Hemlock.

SolarWorld formed an alliance with Hemlock in 2005. They made a total of four supply contracts with each other. The deal was that SolarWorld would buy large amounts of silicon every year from Hemlock to produce photo-voltaic cells. The price of silicon soared as the solar industry boomed -- aided, certainly in Germany, by generous subsidies. Silicon became scarce and more expensive.

Hemlock gave SolarWorld a favorable price. In return for payment guarantees the German company was able to cover its requirements of silicon for less than $50 per kilogram - a good deal when the market price for silicon hit almost $400 per kilogram. But over the years, what had been a shortage of silicon became an oversupply. Prices plunged well below the $50 mark. This meant the contracts had suddenly become unfavorable for SolarWorld, which by then was also struggling to deal with competition from Asia and reduced subsidies at home.

In 2012 it stopped payments to Hemlock. Arbitration attempts failed and in March 2013 Hemlock initiated legal proceedings against  SolarWorld.

At the SolarWorld annual general meeting in June, company boss Frank Asbeck said that even if SolarWorld lost its case, it was not in immediate danger as Hemlock would first have to obtain an enforcement order in Germany to get its money.  Mr. Asbeck was convinced that Hemlock would not obtain an order “either in the short or long-term,” because the contracts violated E.U. cartel law. Mr. Arsbeck went on to say that Hemlock could not enforce anything in the United States as the subsidiary of Solarworld, against which the legal proceedings were being formally conducted, “had no assets in the United States.”

Roland Klose, an expert from the German Shareholders Association, is much less optimistic.  “Asbeck has to try and muddle his way through somehow,” he told Handelsblatt.  Mr. Klose sees hardly any chance of SolarWorld prevailing via the legal route. “They should now go for an out-of-court settlement,” he said. But SolarWorld probably lacks the financial resources for that route too.

Corporate governance expert Christian Strenger told Handelsblatt: “A picture is emerging that SolarWorld founder Frank Asbeck and its major shareholder from Qatar will have to put up the funds to secure the survival of SolarWorld which everyone desires.” Mr. Strenger wonders whether it is now time for “the supervisory board and auditors to oblige the executive board to make provisions?”

Arash Roshan Zamir, an analyst at Warburg Research, thinks it is both “brave and surprising” that SolarWorld has such a low estimation of the risk involved, especially as the negative verdict could affect the company’s business.  After all, SolarWorld generates more than half of its revenues in the United States. If the verdict is returned as expected, and SolarWorld doesn’t pay, then their image is destroyed - and future revenues, possibly too.

 

Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. To contact the author: [email protected]