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Hoku customer misses payment


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POSTED: Thursday, January 15, 2009

Hoku Scientific Inc. said yesterday that it may come up short on financing and be forced to defer about $40 million in capital expenditures for its Idaho polysilicon plant if one of its major customers continues to default on payments.

Wealthy Rise International Ltd., a subsidiary of China-based ingot and wafer producer Solargiga Energy Holdings Ltd., has not yet paid Hoku $43 million of its total $68 million in prepayments, due by the end of last month. Downward international market conditions have “;deeply affected”; solar-panel production companies, Dustin Shindo, chairman and chief executive officer of Hoku, said in a statement.

In early September, Hoku returned $2 million in prepayments each to Sanyo Electric Co. and Solar-Fabrik AG's Global Expertise Wafer Division after ending contract negotiations in part to make capacity for the Solargiga contract.

As of Sept. 30, its $390 million Pocatello, Idaho, polysilicon plant, expected to start commercial shipments this year to its five customers, was effectively sold out at the 4,000 metric ton level.

“;We remain confident in our ability to produce polysilicon in the first half of calendar year 2009, and to deliver polysilicon to our current customers according to the terms of our agreements with them,”; Shindo said. “;We recognize that receipt of the prepayments associated with any new polysilicon contracts could be several months later than previously expected.”;

The Kapolei-based alternative-energy company signed a 10-year contract worth up to $455 million with Wealthy Rise in September. Depending in part on a resolution of that contract, the amount of additional funding needed for plant construction could range from $3 million to $83 million. Hoku said it may defer about $40 million in capital expenditures by delaying construction of its on-site facility to produce trichlorosilane, a chemical compound used to make polysilicon.

Hoku is in negotiations with third-party trichlorosilane producers, although that route would result in an increase in its near-term cost of goods sold.

Hoku also said yesterday it has reduced its supply contract with China-based silicon product manufacturer Jiangxi Jinko Solar Co., formerly Jiangxi Kinko Energy Co., to $178 million over a 10-year period, down from $298 million when the contract was signed in July.

Including the revised Jinko contract, a total default by Solargiga would cause a net reduction of $90 million in current customer prepayment commitments as compared to Sept. 30, to $216 million from $306 million. In exchange, Jinko will provide discounted wafer manufacturing services to Hoku for an unspecified amount of polysilicon a year for the contract's term. The option allows Hoku to offer wafers to some of its customers in lieu of polysilicon.

Jinko also must prepay $13 million by March 31 in addition to the $20 million in deposits already received by Hoku. Hoku has granted Jinko a security interest in its polysilicon assets to secure its obligation to repay $33 million to Jinko as a credit against product shipments over time.

Hoku has received $106 million in prepayments. In total, the contracts are expected to generate about $2 billion in revenue.

The company's first shipment of Siemens-process reactors, key equipment used in the production of polysilicon, recently arrived at the facility in Idaho. The company has received six such reactors, with the first two already installed. The reactors, which were delayed by about a month because of inclement weather on the West Coast, are the first to arrive out of a planned total of 28.

The next shipment of 10 polysilicon reactors and related equipment is planned to arrive in March.