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Tokuyama Takes Loss On Malaysia Polysilicon Plant

Investment Gone Sour: Search for lower production costs results in debacle

by Jean-François Tremblay
November 6, 2014 | A version of this story appeared in Volume 92, Issue 45

Five years ago, the Japanese chemical maker Tokuyama selected the tropical island of Borneo as its second base for the manufacturing of polysilicon, a material used in computer chips and solar cells. But the company appears to have lost its way on the Southeast Asian island. It recently announced that it is posting a special loss of $750 million because one unit it built there doesn’t work.

Tokuyama decided to set up on Borneo’s Malaysian section as part of a diversification strategy. The company was attracted to the area because of its abundance of clean water for industry and its low-cost hydroelectric power.

At the time, the firm said it would spend $570 million on a polysilicon plant with an annual capacity of 6,000 metric tons. In 2011, before the first plant was completed, Tokuyama said it would spend $875 million to build a second plant with a capacity of 13,800 metric tons.

The first plant, which opened last year, has serious mechanical problems, Tokuyama now acknowledges. The second plant came on-line last month but cannot compete against low-cost U.S. polysilicon producers, according to Yoshihiro Azuma, a stock analyst who covers Tokuyama for the investment bank Jefferies.

The underperforming facilities are only part of the company’s problems. The $750 million write-off breaches the conditions of a $435 million bank loan that Tokuyama could be asked to repay immediately. Azuma notes that Tokuyama may also have to refund bond investors who provided another $435 million. To atone for the debacle, senior Tokuyama managers have agreed to take cuts in their compensation packages.


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