UPDATE 2-Q-Cells ends LDK supply agreement, claims guarantee

By Christoph Steitz FRANKFURT, Nov 2 (Reuters) - Q-Cells ended a wafer supply agreement with Chinese peer LDK, in a sign that the industry is continuing to struggle with the oversupply of solar cells. Q-Cells, one of the world's largest makers of solar cells, said on Monday that LDK did not fulfil "significant contractual obligations" with regard to the supply agreement concluded in 2007. LDK was not immediately available to comment. "The contractual parties have differing opinions concerning the validity of the termination of the agreement," Q-Cells said in a statement. "Discussions between the two companies and a parallel arbitration process at the International Chamber of Commerce (ICC) in Paris have not resulted in an amicable settlement yet," the company added. Q-Cells said it made a payment of $244.5 million at the beginning of 2008 related to the agreement, adding that the payment was secured by a bank guarantee and could be reclaimed in the event of termination of the agreement. A spokesman for Q-Cells said that the company would on Monday or Tuesday apply to draw on the bank guarantee after a Berlin court had refused an application by LDK for a temporary injunction to be issued against such a move. By 1423 GMT, shares in Q-Cells were down 3.6 percent, while LDK shares dropped 7.4 percent in U.S. premarket trading. MIXED MESSAGE "The message for Q-Cells is mixed," said SES Research analyst analyst Karsten von Blumenthal. "On the one hand, this will mean a cash injection for Q-Cells which would certainly be of use at the moment. Also, it is likely that wafer prices agreed on in the contract were far higher than the current market prices, so Q-Cells would have a good reason to terminate the agreement." The move comes as manufacturers of solar cells and modules around the world are struggling with oversupply that has driven down prices and curbed demand, already forcing Q-Cells to withdraw its 2009 outlook and cut jobs. Q-Cells's U.S. rival, First Solar, too, last week reported sales below Wall Street's view, sending its shares sharply lower after its outlook showed that cell prices were still impacted by oversupply. SES Research's Blumenthal, however, added that there was uncertainty now about whether LDK would take any legal steps as a response to the move. This, he said, could be a burden on Q-Cells's stock, as was the case with peer Conergy and its legal dispute with MEMC. The termination also casts doubts on Q-Cells joint venture with LDK which both companies formed in April this year. Analysts saw the joint venture as the right strategic move for Q-Cells to enter the Chinese market, which is set to become one of the industry's growth drivers, boosted by large government subsidies. "It is difficult to imagine that this won't have an impact on the joint venture," Commerzbank analyst Robert Schramm said. A Q-Cells spokesman said: "At the moment we don't see any fallout (from the termination) on the joint venture." (Additional reporting by Matt Daily in New York; editing by Simon Jessop) Keywords: Q CELLS LDK/ Keywords: Q CELLS LDK/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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