| PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION | (1) PRINCIPAL ACTIVITIES, ORGANIZATION
AND BASIS OF PRESENTATION
Principal activities and organization
LDK Solar CO., Ltd. (the “Company” or
“LDK”) is incorporated in the Cayman Islands and was
established on May 1, 2006. LDK and its subsidiaries
(collectively, the “Group”) are principally engaged in
the design, development, manufacturing and marketing of
photovoltaic (“PV”) products and development of power
plant projects in the People’s Republic of China
(“PRC”) and overseas market.
On February 27, 2014, the Grand Court of the Cayman Islands
(the “Cayman Court”), appointed joint provisional
liquidators (the “JPLs”) to place the Company into
provisional liquidation, pursuant to a winding-up petition the
Company filed with the Cayman Court on February 21, 2014 on
grounds of insolvency in anticipation of its inability to honor its
payment obligations under the Rmb-denominated US$-settled 10%
senior notes due 2014 (the “Senior Notes”), the series
A mandatorily redeemable convertible preferred shares of LDK
Silicon & Chemical Technology Co., Ltd. (“LDK
SCT”) (the “Preferred Shares” or “Preferred
Obligation”) and payables due to other offshore creditors.
Provisional liquidation is a procedure under the Cayman Islands law
to preserve and protect the assets of a Cayman Islands company
until the hearing of a winding-up petition and the appointment of
official liquidators. It is also used, as in the Company’s
case, as a method of protecting a Cayman Islands company from its
creditors in order to allow it an opportunity to attempt to reach a
compromise or arrangement with its creditors on terms likely to be
more advantageous to creditors than realizing and distributing its
assets in an official liquidation under the Cayman Islands law.
In collaboration with the JPLs and negotiation with the
Company’s creditors, the Company has prepared the schemes of
arrangement (“the Schemes”), which were approved by the
Company’s scheme creditors and became effective on
December 10, 2014. Pursuant to the terms of the Schemes, the
closing date for the restructuring of the Senior Notes, Preferred
Obligation and payables due to other offshore creditors, as
contemplated in the Schemes (“Debt Restructuring”),
occurred on December 17, 2014.
On April 4, 2015, the Grand Court of the Cayman Islands
ordered that, effective on April 21, 2015, the Company’s
winding-up petition of February 21, 2014 will be dismissed. By
this court order, LDK’s provisional liquidation has been
brought to a conclusion on April 21, 2015.
Basis of presentation
The accompanying unaudited condensed consolidated interim financial
statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been
condensed or omitted as permitted by rules and regulations of the
U.S. Securities and Exchange Commission (“SEC”). The
condensed consolidated balance sheet as of December 31, 2014
was derived from audited consolidated financial statements of the
Group. The accompanying unaudited condensed consolidated interim
financial statements should be read in conjunction with the
Company’s consolidated financial statements included in the
Company’s Annual Report on Form 20-F filed with the SEC on
May 11, 2015.
In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary to present a fair statement of the
financial position as of June 30, 2015, and the result of
operations and cash flows for the six-month periods ended
June 30, 2014 and 2015, have been made.
The preparation of condensed consolidated interim financial
statements in conformity with U.S. GAAP requires management of the
Group to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates, including those
related to the realization of inventories, trade accounts
receivable, prepayments to suppliers and deferred tax assets,
estimated useful lives and residual values of long-lived assets,
the recoverability of the carrying values of long-lived assets, the
determination of fair values of financial instruments and
share-based instruments, the accrual of warranty expenses,
provision for loss on firm purchase commitment and assessments
about potential tax uncertainties, contingent liabilities and the
Company’s ability to continue as a going concern. Changes in
facts and circumstances may result in revised estimates. The
current economic environment has increased the degree of
uncertainty inherent in those estimates and assumptions.
The accompanying unaudited condensed consolidated interim financial
statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. The
realization of assets and the satisfaction of liabilities in the
normal course of business are dependent on, among other things, the
Company’s ability to operate profitably, to generate cash
flows from operations, and to pursue financing arrangements to
support its working capital requirements.
The Group has suffered recurring losses from operations and has
incurred a net loss of US$142,234 for the six-month period ended
June 30, 2015. In addition, the Group had a working capital
deficit (total consolidated current liabilities exceeding total
consolidated current assets) of US$4,364,460 and a total capital
deficit of US$2,439,906 as of June 30, 2015. As of
June 30, 2015, the Group had cash and cash equivalents of
US$10,378, and total short-term borrowings and current portion of
long-term borrowings of US$2,799,355. As of June 30, 2015,
outstanding short-term borrowings of US$1,406,351 were overdue and
were subject to standstill and forbearance arrangement as verbally
agreed with the banks. The Group has not yet renewed such loans as
of September 30, 2015.
Further, the significant financial difficulties the Group is
currently experiencing and the deterioration of the Group’s
financial condition may result in the exercise of subjective
acceleration provisions in some of the Group’s loan
agreements that give the lenders the right to accelerate the
repayment of the loans.
These factors raise substantial doubt as to the Company’s
ability to continue as a going concern. Management believes that it
has developed a liquidity plan, as summarized below, that, if
executed successfully, will provide sufficient liquidity to meet
the Company obligations for a reasonable period of time.
• Bank Financing and Other
Financial Support
On November 11, 2013, the Group signed a framework agreement
with a syndicate of 11 commercial banks in China for a working
capital facility in the aggregate principal amount of Rmb 1,560,000
(or approximately US$255,900) (the “Working Capital Facility
Agreement”). As of September 30, 2015, the Group had
withdrawn Rmb 400,000 (or approximately US$65,370) from the credit
facility and may further draw down subject to the absolute
discretion and additional conditions imposed by the syndicate on a
draw-specific basis. The proceeds drawn down under the Working
Capital Facility Agreement are strictly limited to financing the
Group’s onshore PRC operations within Jiangxi Province, and
the Group may not use any of the proceeds to service the
Group’s existing indebtedness, whether onshore or offshore.
The facility will terminate on November 10, 2016 and each
draw-down under the facility may be made subject to the absolute
discretion and additional conditions imposed by the syndicate on a
draw-specific basis.
As of June 30, 2015, outstanding short-term borrowings of
US$1,406,351 were overdue and were subject to standstill and
forbearance arrangement. The Group has not yet renewed such loans
as of September 30, 2015. Although the Group has not settled these
overdue borrowings, management believes that the Group will
continue to be able to keep such standstill and forbearance status.
In addition, management is evaluating the possibility of engaging
the banks with a view to restructuring the Group’s overall
indebtedness in China, together with the introduction of strategic
and financial investors to improve the Group’s liquidity.
• Disposal of Properties and
Sales of Solar Farm Projects and Other Assets
The Group will continue to sell its solar farm projects in the
ordinary course of its solar farm project development business.
Some of the projects have become, or will soon become, salable in
Europe, the United States and China. On March 30, 2015, the
Group entered into a sales agreement with subsidiaries of Solar
Power Inc. (“SPI”) to sell the Group solar farm
projects in Europe and the United States. Sales of solar farm
projects to SPI are still pending as of September 30, 2015. In
addition, the Group is also evaluating the possibility to pledge or
sell the shares in SPI it owns for new financing to support the
working capital needs of the Group. In addition, the Group has also
been in various stages of discussions with potential external
buyers to unload solar projects in China, Europe as well as the
United States of America.
• Delay in Capital Expenditure
and Improvement in Working Capital Management
The Group has been negotiating with a number of its vendors,
including suppliers of equipment and construction materials to
obtain preferential pricing terms and more favorable payment terms.
The Group has also decided to postpone a substantial portion of its
planned capital expenditures for the next 12 months until market
conditions improve for management to be comfortable in incurring
such or a portion of such expenditures. To actively manage the
Group’s cash flow and working capital requirements,
management has implemented measures to closely monitor the
Group’s inventory levels and manage the collection of the
Group’s receivable balances.
• Onshore Financial Restructuring
Program
The Group’s operating subsidiaries in China have a
significant amount of onshore debt currently subject to a
standstill and forbearance arrangement with the Group’s
onshore creditors. Currently, the Group is not servicing such debt.
The Group is starting to engage its creditors in China in an effort
to restructure its onshore China liabilities in a mutually agreed
manner as of September 30, 2015. The success of such capital
restructuring in China will materially improve the Group’s
liquidity.
While management believes that the measures in the liquidity plan
will be adequate to satisfy its liquidity and cash flow
requirements for the twelve months ending June 30, 2016, there
is no assurance that the liquidity plan will be successfully
implemented. Failure to successfully implement the liquidity plan
will have a material adverse effect on the Group’s business,
results of operations and financial position, and may materially
adversely affect its ability to continue as a going concern. The
condensed consolidated interim financial statements do not include
any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or
any other adjustments that might be necessary should the Group be
unable to continue as a going concern. |
