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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 5, 2014

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. The government also offered incentives.

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 it 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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