REC Silicon writes down China joint-venture investment to zero

The investment of U.S.-based polysilicon manufacturer REC Silicon in its Chinese joint venture Shaanxi Non-ferrous Tian Hong REC Silicon Materials Co., Ltd. (TianREC) is souring. “Due to the fact that we have limited insight and influence, we have decided to write down our investment in China to zero,” CEO Tore Torvund said at the presentation of his company’s fourth-quarter results on February 19. REC Silicon has a 15% share in the joint venture (JV), which is located in Yulin, Shaanxi province.

The company’s quarterly report explains the decision as follows: “Due to the impact of continuing losses, continued delays in realizing designed production capacities, and continued deterioration in REC Silicon’s ability to influence business decisions, increases in anticipated cashflows have not been realized. In addition, the Yulin JV has accumulated additional long-term debt to fund operating losses, to complete construction, and to maintain operations. As a result, estimated enterprise value less long-term debt results in a deficit equity value.”

REC Silicon’s relationship with its JV partner has deteriorated since its advising U.S. specialists had to leave China due to the Covid-19 pandemic in January 2020. “It is very difficult to communicate with our partner,” laments Torvund. Moreover, the Chinese side has not paid delinquent invoices from REC for remote technical assistance provided to the JV. As a consequence, REC Silicon has withheld the final equity settlement payment of US$4.7 million, which was due in December 2020.

The only good news from Yulin is that the output of granular polysilicon from the fluidized bed ractor (FBR) plant improved to 2,109 metric tons (MT) in the fourth quarter, an increase of 69% compared to the average of the first three quarters. However, the annualized amount of 8,436 MT in the fourth quarter is still less than half of the nominal capacity of 19,000 MT – three years after the facility started up.

According to REC’s quarterly report, the JV “is increasing production of high purity granular polysilicon using high purity liners as they are delivered.” The output “is now used by the largest mono wafer makers,” CEO Torvund said, obviously alluding to Longi and Zhonghuan Semiconductor.

Regarding a restart of the company’s FBR plant in Moses Lake in the U.S. state of Washington, Torvund reiterated the goal to reopen the factory in 2023. It was striking, however, that he did not directly answer an analyst question about the current state of cooperation with the start-up Violet Power, which intends to co-locate an integrated solar module factory with the FBR plant in Moses Lake. In contrast to REC’s second cooperation partner Group14, a silicon-anode start-up, Violet Power was not mentioned in the Q4 presentation slides either.