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Executives

Allen Page - The Blueshirt Group, IR

Xiaofeng Peng - Chairman

Sam Tong - President and CEO

Jack Lai - Chief Financial Officer

Dr. Yuepeng Wan - Chief Technology Officer

Analysts

Ankit Bafna - Credit Suisse

Edwin Mok - Needham & Company

Håkon Levy - DNB Markets

Aaron Chew - Maxim Group

Tony Grillo - Needham & Company

Kevin - BFAM

Nicholas Xiang - Nomura

Shea Yang Yu - China International Capital Corporation

LDK Solar Co., Ltd. (LDK) Q3 2012 Results Earnings Call December 3, 2012 8:00 AM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the LDK Solar Company Third Quarter 2012 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

This conference is being recorded today, Monday, December 3, 2012. I would now like to turn the conference over to [Allen Page] from The Blueshirt Group. Please go ahead, ma’am.

Allen Page

Good morning. And thank you for joining us on today's conference call to discuss LDK Solar's third quarter 2012 financial results. This call is being broadcast live over the web and can be accessed on the Investor Relations section of LDK Solar's website at www.ldksolar.com for 90 days.

On today's call are Xiaofeng Peng, Chairman of LDK Solar; Sam Tong, President and Chief Executive Officer; Jack Lai, Chief Financial Officer; and Dr. Yuepeng Wan, Chief Technology Officer.

Earlier today, LDK Solar issued a press release discussing the results for its third quarter 2012. We also filed the press release on Form 6-K with the U.S. Securities and Exchange Commission. The press release is accessible online at the company's website, as well as the SEC's website.

We would like to remind you that during the course of this conference call, LDK Solar's management team may make projections or other forward-looking statements regarding future events or the future financial performance of the company made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Although, LDK Solar believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

We refer you to the documents that LDK Solar files from time-to-time with the SEC, specifically the company's most recent Form F-20 and any Form 6-Ks. These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

And now, I'd like to turn the call over to Mr. Xiaofeng Peng, the Chairman of LDK Solar to go over LDK Solar’s business update for the third quarter. Chairman, Peng, please go ahead.

Xiaofeng Peng

Good morning to you all and thank you for joining us on LDK Solar's third quarter 2012 earnings conference call. I will provide you with the business update, later on the call Sam Tong, CEO will provide an update on our operations, Jack Lai, CFO will discuss financial results for the third quarter, and Dr. Yuepeng Wan, Chief Technology Officer will provide R&D update.

As of November 5, I transition to Chairman of LDK Solar, in light of the continued challenging environment for solar company. I have [demand] that I can be best serve the company by focusing my time on guiding helping Solar’s strategic direction and developing partners and other key relationships.

Sam Tong has been appointed Chief Executive Officer. I’m confident that during his tenure at LDK Solar, Sam had developed in-depth operation expertise that will be valuable in the role of CEO and will ensure as most transition.

During the past months we also added five new members to LDK Solar’s Board of Directors. We believe that by separating the role of Chairman and CEO along with adding additional highly experienced members to the Board, this will enhance our corporate governance and better position the company.

We were pleased to [certainly] close our share purchase agreement with Heng Rui Xin Energy Company Limited, as a PRC company investment by the privately-owned and State-owned funds.

Heng Rui Xin is engaged in solar power investments and relative business. We look forward to working together with Heng Rui Xin and believe that investment in LKD Solar will help support our long-term growth strategy.

We are navigating the current volatile market environment by streamlining our manufacturing operations, reducing production costs and improving utilization. In order to include the industrial downturn, we continue to believe that the most critical issue for all solar investment participants are sustain the cost reduction and managing for a stronger balance sheet.

The LDK's management team is fully engaged in strengthening our operation and tightening our cash flow management by seeking strategic equity investors to optimize our share structure and increase our capital position to lower the debt equity ratio.

Working with these bankers on strategy to bring the more fresh capital to meet our working capital needs, working closely with customers to resolve challenge around long-term supply agreement, minimizing capital expenditure to only spend our manufacturing process improvement projects, expand the consumption of our inventory in our hand and sell our completed PV project in order to generate cash flow and continue to reduce our operating expenses on an ongoing basis.

Now, let me turn the call to Sam Tong, our President and Chief Executive Officer. Sam?

Sam Tong

Thank you, Chairman, Peng. I will provide an update on LDK’s business and operations in the third quarter, as well as discuss our operations strategy for the reminder of the year. Before I begin, I want to say that I’m pleased to assume the role of CEO and look forward to working with Chairman, Peng, and the team navigating the near-term industry challenges, while continue to build a foundation for the growth of LDK Solar.

The environment for the solar industry remained difficult in the third quarter. Our revenue was within expected range, as a result continued to reflect the protected challenging conditions affecting the solar industry. Pricing pressure caused by weak market demand and industry oversupply continue to adversely affect our business.

Despite our ongoing cost reduction efforts, lower pricing across our global supply chain led to the continued ASP erosion and together with the impact of inventory write-down and other provisions, reduced our revenue and margins in the third quarter.

We generated $291.5 million in revenue with a negative 11.2% gross margin. As evident by our results, the solar industry continues to come from very harsh conditions. Our financial performance was also affected by lower utilization of manufacturing capacity, inventory write-down and financial expense impact.

Market challenges including transition in traditional feed-in-tariff market such as Germany and Italy. The extraordinary U.S. market anti-dumping duties and PV project execution delays due to the permits and subsidies from our customers.

I would like to provide some color on our -- some of our key markets in the regions. While European markets remain difficult, we have been exploring emerging new markets in Eastern Europe, Central Africa, Australia, Japan, India and other areas in Asia. We will continue to expand our presence in the North American region as we believe that free trade will prevail and we can continue to grow in this market region.

We will work to ensure that we can meet the growing demand for our products in the U.S. at global competitive prices. We remain optimistic about the regions long-term growth potential.

We continue to believe that some markets such as China will see improved demand as a year progresses. Our strong presence in China has long been a competitive advantage and has advanced our efforts to expand our PV project development business. We expect to see continued growth opportunities throughout China market this year and the years to come.

Turning to our operations, our wafer processing costs in the third quarter increased to $0.25 per watt from $0.17 per watt in the second quarter as a result of lower utilization rates.

We will continue to work towards our goal of reducing wafer conversion costs to as low as $0.15 per watt over the next few quarters. Instead of strictly lowering costs, we are also focused on delivering higher quality and higher efficiency wafers to our customers.

Over the past three quarters, we provided update on our new generation of LDK M2 high efficiency wafers and shared the positive feedbacks we have received from our major customers.

We have increased manufacturing capacity of M2 wafers to more than 70% of our total wafer production. In -- with the fast changing market demand, we’re now in the position to promote our third generation of M3 wafers to the vast solar market.

We have substantially reduced our solar cell and solar module production volume in the past months, primarily due to depressed market price of PV product. As a result, our cell and module processing costs has increased in the third quarter of 2012. Despite the decrease in production volume we have increased our shipment of solar cells and modules in order to control our inventory balance and generate cash flow.

To enhance the quality control, we scaled our module operation with more automated production lines in the third quarter and we anticipate lower shipment volume in the first quarter because of the impact of anti-dumping issues from the United States and Europe.

During the third quarter of 2012, we have also substantially reduced our polysilicon production volume due to the installation of hydrochlorination systems to achieve future lower production cost.

In summary, while business environment remains tough our management team has worked diligently to build leaner and stronger operations. Our management team will continue to work closely evaluating and optimizing our operations on a regular basis, so that we can adapt our business to evolving demand environment.

I will now turn the call over to Jack Lai, our Chief Financial Officer, to discuss financial results for the third quarter. Jack, please?

Jack Lai

Thank you, Sam. Good morning. And thank you for joining us to discuss LDK Solar's third quarter of 2012 results. Net sales for the third quarter were $291.5 million, up 24.0% from $235.4 million in the second quarter.

Wafer sales decreased to $68.2 million from $39.9 million. Cell and module sales increased to $96.1 million from $78.3 million. Polysilicon sales decreased to negative $94,000 from $14.5 million.

During the third quarter, LDK Solar had an inventory write-down of $37.8 million due to relatively high production costs incurred in the third quarter and continuous decline in market price for polysilicon, wafers, cells and modules. As a result, gross margin and operating results for the third quarter were negatively impacted.

By geography, net sales in the third quarter were 39.7% generated from China, 19.5% from Asia-Pacific excluding China, 26.8% from Europe and 13.9% from North America. All our top 10 accounts in the third quarter accounted for 25.5% of total revenues, with the top three accounts combined accounted for 12.4%.

Wafer shipments decreased to 230.2 megawatts from 316.7 megawatts in the third quarter. The average selling price for wafers was $0.30 per watt in the third quarter, up slightly from last quarter. Cell and module shipments were 161.9 megawatts in the third quarter, up from 135.6 megawatts in the second quarter.

The average selling price for modules excluding our processing business was $0.68 per watt in the third quarter. The increase in cell and module shipment during the third quarter reflected our efforts to continue to control our inventory balance.

Gross margin in the third quarter was negative 11.2%, compared to a negative 39.1% in the second quarter. Our gross margin for all wafer business in the third quarter was negative 89.5%, down from negative 47.2% in the second quarter. Gross margin for our cell and module business increased to negative 39.8% in the third quarter from negative 62.4% in the second quarter.

Overall, the negative impact to our gross margin for our wafer business in the third quarter was due to severe price erosion, which was significantly steeper than anticipated and the inventory write-down during the third quarter. The increase in gross margin of our cell and module business was partially impacted by reversal of anti-dumping reserves provided previously.

Our wafer conversion costs was $0.25 per watt, as we have not fully utilized our capacity during the quarter and the average costs of polysilicon we consumed was $20.5 per kilogram in the third quarter.

Operating expenses were $43.2 million in the third quarter, down from $80.7 million in the second quarter. During the third quarter of 2012, $8.0 million of provision for doubtful receivables was reversed in general and administrative expenses, compared to $1.2 million of provision for doubtful receivables met during the second quarter.

Loss from operations for the third quarter of fiscal year 2012 was $75.7 million, compared to the loss from operations of $172.7 million for the second. The decrease in loss in the third quarter is partially impacted by $13.5 million impairment loss for property, plant and equipment that recorded in second quarter.

Our share-based compensation expenses were approximately $2.6 million in the third quarter of 2012. Operating margin in the third quarter was negative 26.0% versus negative $73.4% in the second quarter.

Net loss available to our shareholders for the third quarter was $136.9 million and loss per diluted ADS was $1.08. Approximately 127.2 million shares were used in computing the fully diluted EPS.

Depreciation and amortization was $64.0 million for the third quarter. Capital expenditures were $5.6 million in the third quarter, which includes $1.7 million for wafers, $2.2 million for cells and modules, and $1.3 million for polysilicon.

Our wafer manufacturing capacity reached 4.3-gigawatt in September and we reached total installed polysilicon production capacity of 17,000 metric tons.

Going forward, we anticipate CapEx for the fourth quarter of 2012 will be -- continue to be relatively low. Our headcount was 13,500, I’m sorry, 13,958 at the end of September of 2012, a reduction of 2,563 as compared to 16,521 at the end of the second quarter.

Facing highly competitive solar market, we implemented strategies to optimize our organization structure, increase our productivity, enhance production management and allow our production plan and labor requirements, which result in increased productivity and operational efficiency. We have been rightsizing our production outputs in order to build a sustainable capacity with the responsive scale to match our customers’ demand.

Now, let’s turn to the balance sheet. We ended the third quarter with $111.9 million in cash and cash equivalents and $340.7 million in short-term pledge bank deposits. Inventory decreased to $324.5 million from $467.1 million in the second quarter of 2012. Our turnover days of our account receivables decreased to 98 days while our payables decreased to 129 days.

We expect several PV project in the final stage of completion will be sold in the next couple of quarters. Our polysilicon inventory at the end of the third quarter was approximately 319 metric tons at an average cost of approximately $15.6 per kilowatt.

Total interest-bearing borrowings were approximately $2.7 billion at the end of the quarter, including approximately $2.1 billion of short-term borrowings and $0.6 billion of long-term borrowings.

Now, let me turn the call to Dr. Wan, our Chief Technology Officer to provide you with an R&D update. Dr. Wan.

Dr. Yuepeng Wan

Thank you, Jack. I would like to provide an update of our research and development progress. The new generation multi wafers M3 have been successfully developed according to our R&D roadmap. The improved quality of M3 wafers lead to an absolute efficiency increase of about 0.5% to 0.6% compared to the current conventional multi wafers.

New metallization processes have been developed in our R&D facilities. Implementation of these new processes can result in an increase of solar cell conversion efficiency of about 0.3% to 0.5% and the reduction of (inaudible) paid of about 8%. A new solar technology for preventing power-induced segregation has been developed that result in PID free solar cells and modules have been passed the PID test with the degradation of less than 1% with our M2 product.

Our R&D center has received $3.5 million R&D grants from the government and three R&D projects have been selected for the provincial investor innovation program. During the third quarter, 11 patents were granted and three patents were applied for.

I will now turn the call back over to Jack. Jack?

Jack Lai

Thank you, Dr. Wan. Based upon current business conditions for the first quarter of fiscal year 2012, LDK Solar estimates its revenue to be in the range of $230 million to $290 million, wafer shipments between 200 megawatts and 250 megawatts, cells and module shipments between 50 megawatts and 80 megawatts.

For fiscal year 2012, LDK Solar estimates its revenue to be in the range of $950 million to $1 billion, wafer shipment of between 910 megawatts and 960 megawatts, cell and module shipment between 500 megawatts and 530 megawatts, and inverter shipments between 150 megawatts to 200 megawatts.

LDK Solar expects PV system project construction to be in the range of 200 megawatts to 300 megawatts and to recognize between 50 megawatts and 100 megawatts through project sales and EPC services for third-party customers.

And now, we would like to turn the call to the operator to open the lines for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ankit Bafna with Credit Suisse. Please go ahead.

Ankit Bafna - Credit Suisse

Hello.

Xiaofeng Peng

Hello.

Ankit Bafna - Credit Suisse

Hello. Hi. Can you hear me?

Xiaofeng Peng

Yeah. Go ahead please.

Ankit Bafna - Credit Suisse

Hi. This is Ankit Bafna from Credit Suisse. I have three questions. First of all, I mean, we see a total debt going down versus the second quarter this year. I mean, can you tell us, I mean, where exactly the reduction come from and why has the debt gone down?

Jack Lai

Well, we have refinance programs and when the company has cash flows generated, we work with our lenders and banks that to selectively pay off some of our debt which is mature, which we think that is better for the company to pay off. And we gradually work on a one-on-one basis with our banks.

Ankit Bafna - Credit Suisse

Okay. So has all the decline in debt that has come in the third quarter is because you’ve paid out, you’ve paid back the debt as and when it got matured?

Jack Lai

Yeah. Some lenders that we feel that it is more economic. For instance, if -- as long it’s 7% -- as long as 5%, we probably decide to pay the 7% first in our cost debt selectively, we do it on a one-on-one basis.

Ankit Bafna - Credit Suisse

Right. Okay. That makes sense. Okay. Second thing is if we compare your volumes of -- in terms of the shipments for wafers and cells in third quarter versus the second quarter, we feel that the volumes are down. I mean, if we add wafers and cells and modules all together, second quarter was about 550 megawatts versus the third quarter which is around 400 megawatts, right. Despite the decline in the shipment, your revenues have sort of gone up from about $230 million to $291 million, right. Just wondering, I mean, why is it this way?

Jack Lai

Basically, as you know that our R&D has been doing a good job to switch very high ratio of producing a new product which we called M2 wafers, which also happen to have very high quality and acceptance by our customers is very, very good, which we also can charge higher ASP to our customers. And it seems they are doing a very good job to make very good sales from our wafers and that also contribute to our increase in revenue.

Ankit Bafna - Credit Suisse

Okay. So the ASP for third quarter, as you said for wafer was about $0.30 per watt, right. I mean, how much was the -- how higher is this versus your second quarter ASP?

Jack Lai

Second quarter was about $0.25. So it was very good increase for us and we believe that the M2 wafers work very well for the company.

Ankit Bafna - Credit Suisse

Right. Okay. Right. And then the last question, I had. I’ll queue up again, I have more questions after this. I mean, can you share, I mean, some details as to a cash flow. I mean, how much was your operating cash flow and what was the interest paid in the third quarter?

Jack Lai

Well, the cash flow from, firstly from the deal was slightly positive and on a quarterly basis, we pay approximately $16 million in interest expense.

Ankit Bafna - Credit Suisse

Okay. All right. Thank you. Thank you so much.

Operator

Thank you. Our next question comes from the line of Edwin Mok with Needham & Company. Please go ahead.

Edwin Mok - Needham & Company

Hey guys. Thanks for taking my question. First question is on project. How much revenue do you recognize for the quarter and how much megawatt did you recognize in the current quarter -- in the third quarter?

Jack Lai

For the quarter, we recognize about $0.5 million and we still have several projects in process of finalizing sales. So we’ll be realizing in the next quarter or two.

Edwin Mok - Needham & Company

I see. But for the full year, you is to target 50 megawatt to 100 megawatts of project sales?

Jack Lai

Yeah.

Edwin Mok - Needham & Company

But you haven’t recognized much revenue for project for the first nine months of this year. Is that correct?

Sam Tong

The project revenue, we have two. One is the EPC and one is the total EPC revenue, one is the total project sales revenue.

Edwin Mok - Needham & Company

I see. I see. That’s very, very helpful.

Sam Tong

So for the third quarter, EBC revenue, we put in other revenue.

Edwin Mok - Needham & Company

I see. For the third quarter, your guys have a strong pickup in your other revenue line where we should include EPC as well as inverters. Is that correct?

Sam Tong

Yeah.

Edwin Mok - Needham & Company

I see. Very helpful. And then for the quarter, just quickly how much poly did you guys produced?

Sam Tong

In the third quarter, poly production is very small.

Edwin Mok - Needham & Company

Very small.

Sam Tong

Very small, Wan?

Dr. Yuepeng Wan

Yeah. Yeah.

Edwin Mok - Needham & Company

I see. And then, lastly, and I’ll jump back in the queue. I noticed that your inventory has come down quite a bit for the quarter. You mentioned low utilization, so you probably had some work done there. Beyond that, right, did you guys do more work on inventory, was it -- is that reduction in terms of raw material purchases or is that just come from low utilization?

Sam Tong

Our inventories include in projects that so -- I think when we said our projects assets, our inventory will continue. We’ve done -- we're doing a very good job to clean our inventory to gather in more cash. We will continue to reduce our inventory in the next two quarters.

Edwin Mok - Needham & Company

Great. That’s all I have. Thank you.

Operator

Thank you. Our next question comes from the line of Håkon Levy with DNB Markets. Please go ahead.

Håkon Levy - DNB Markets

Thank you for taking my questions. Two questions, first on your polysilicon manufacturing, could you give us the status on what do you see status of the production on your outlook for the fourth quarter in 2013 for this duration. And secondly, could you walk us through your debt maturity schedule both for next couple of quarters and for 2013 and ‘14 and give us some color on how you expect to meet your financial liabilities and debt maturities? Thank you.

Jack Lai

So on the first question for polysilicon production in the first quarter, we are in the process of modifying our manufacture increment for polysilicon. So the production expectation will be very, very small.

As far as on the debt maturity schedule, we have somewhere about $2.5 billion over the next 12 to 18 months and by schedule, by looking at about $0.5 billion in the next couple of quarters that we need to work on and of course, the company is making efforts to assure that we’ll be able to refinance or we can find some other financing alternatives to meet those balance sheet schedule.

Håkon Levy - DNB Markets

Okay. And on polysilicon, why didn’t you expect to finish the upgrade?

Sam Tong

Well, nobody -- the process multiplication of poly caused about three to six months which will cause another three to six months to ramp up. So we are talking about maybe between six months to 12 months depending on how fast we can get the engineering modifications done and also, we believe that for our experience, if equipment is installed, nobody we can probably bring to production as in about three months. But I think to a quarter, three to six months will be more conservative to deal with our investors.

Håkon Levy - DNB Markets

I understand. And there is a follow-up on the debt maturities. You consider, I think more equity as part of a strategy to reduce the debt?

Sam Tong

I’ve seen we’ve just closed the deal almost $30 million with energy company and we believe this deal was very helpful, not only just increase the capital but also bringing some expertise to help the company to grow our business. And certainly that company is continuing to evaluate the business conditions that in case that we have opportunity to raise more capital, we will do so, especially a low strategic investors not only bringing fresh capital but also bringing debate of expertise to have more corporation partners that certainly will enhance the company’s technology, product line or even applications or market and certainly that we are open for those new investors to broaden our investor base.

Håkon Levy - DNB Markets

Okay. But weren’t you need to raise much more capital than the most recent capital, right. It’s of course helpful but its small amount compared to your total gross outstanding debt?

Jack Lai

Well, I feel certainly that a company is very mindful about the outstanding debt but in the same time that we are also working on our operation to assure that we can turn loss operation into break-even or better focus on our business in higher margin products, focus on our business that can generate positive cash flow and that certainly will help from an operation point of view. And the same time, we were working on deepen refinancing strategies that will help the company to improve the balance sheet situation.

Håkon Levy - DNB Markets

Okay. Thank you.

Sam Tong

Thank you.

Operator

Our next question comes from the line of Aaron Chew with Maxim Group. Please go ahead.

Aaron Chew - Maxim Group

Thanks so much for the question. How are you doing, Jack?

Jack Lai

Good.

Aaron Chew - Maxim Group

There is a lot of chatter out there amidst the industry, amongst some customers and peers that your poly facility production -- I should say your poly facility has actually been -- has halted productions perhaps many months ago. Just wondering if you could comment on this chatter and how to reconcile this with the poly production that you’re undergoing now. I mean, have you shut down parts of the facility. Have you shut down some of the higher cost lines and this is a quick follow up to that wondering if given reports of some poly spot pricing as well as 15 bucks if it does make sense for you to maybe procure poly rather than produce it. But any of your thoughts would be greatly appreciated?

Jack Lai

Yeah. Aaron, certainly that you probably see all different discussions over the internet or whatsoever. Do you know that we have two poly prints and one in Mahong, which is one that we just talk about to modify the production line that we currently that are not in production. And we do want to bring that technology for one more process is back so that we can get it much better production cost and at the same time can reduce energy consumption and also risk bringing 17,000 to 20,000 in full capacity which were lower depreciation will help the overall production cost. You are right. At the current time, at $15 spot market price, it’s very difficult for us to make it very economical to open debt in Mahong production line.

The slow front that’s at times we produce in a much smaller scale and that the cost, we can achieve is very good in terms of the small scale but that small scale production certainly, we cannot make it to the $15 range either. So, what do you see the output for the company today will be very, very small. That’s a reason that we give you the range that it’s going to be very, very small.

We are anticipating the notification of the process that can be accomplished and the same time that we can try to ramp it that to the design capacity, of course, couple with the reduction in energy consumption, which of course is read to the electricity. So, we believe that when the market situation more origin now, which means that the -- in general inventories are consumed and that maybe give the poly price to be coming back in mid-20s even to the somewhere across to 30, which we believe that we can produce, the polysilicon not only to meet the market price, but also to generate some returns for our investors.

So, we are still working. Just a few months we have to get through, certainly that we are helped with situation. I think that six to nine months of time investments and this time that we believe to be less probably is small economical for the company and probably is better for our investors.

Operator

Our next question comes from the line of Tony Grillo with Needham & Company. Please go ahead.

Tony Grillo - Needham & Company

Hi. Thanks for taking my call. I guess my first question is where you guys see prices going or trending in the December quarter and also looking into 2013?

Jack Lai

Price for in polysilicon I think now is already see you where that will be the low price level. I think Solar Wafers, Solar Module also it’s a very low (inaudible). So, for the manufacturing, that very much depends on demand but now we see the prices are very stable and -- but for the company employees, we just now take orders that we can generate positive cash. So, a current situation for the price we see probably is stable and if the market change may be next year, we probably see a step-by-step that you go up a little bit in next year.

Tony Grillo - Needham & Company

Okay. Thank you for that. And then also what’s driving the decline in module shipment and do you expect to stay around this number in quarters to come?

Jack Lai

Because, basically it also Christmas season coming and we don’t -- we only take the orders that have a positive cash flow and also -- we also don’t want to take orders that have a too much long-term payment turns. So, now we just focused on customer demand. So, also we want to reduce our inventory to that level, many company more efficient levels. So, we just focused on the orders that are already generating positive cash.

Tony Grillo - Needham & Company

Okay. Thank you.

Operator

(Operator Instructions) Next question from the line of [Kevin with BFAM]. Please go ahead.

Kevin - BFAM

Hi. Thanks for taking my questions. I’m just wondering that how LDK benefit from the search of domestic demand and given that China has announced this year of positive and you are looking at the domestic, how is the LDK formulating strategies to benefit from this trend? Thank you.

Sam Tong

Well, as you see China recently issued a series of policies to promote the end market that means the solar standard or distributed solar systems. Well, we are expecting there will be much faster growth in the coming quarters for the end market in China that’s why we are not only working by ourselves but we are also working with our long-term partners for the product in different regions in China.

Kevin - BFAM

And is there any particular number maybe those numbers that you actually targeting at from -- actually generated from the domestic demand maybe for the next quarter, as well as for the next full year?

Sam Tong

That is for the whole year. I think even now many provinces in China started implementing this kind of policies and we are seeing more and more market started in China for this kind of new policies. So that’s why we are expecting more and more products that will start in the next couple of months and all the year along.

Kevin - BFAM

Okay. Thanks. My last question is on, can you actually share with us any specific actions that you are going to undertake in order to solve the short-term debt issues, whether there will be, how do you feel with the short-term operators and how that operators and how are your intensity with the short-term bank loan?

Dr. Yuepeng Wan

Yeah. Of course, as you know that we still have maybe $300 million receivables that we can collect. We have now the $300 million on the book for inventory we can sale. And our operation has been very diligently and we’re working on translate all these asset items to become cash. In the same time, of course, that we also looking for refinancing strategies that can help us to get the new loans to repay the mature loans.

Kevin - BFAM

Okay. Thanks.

Operator

Thank you. Our next question comes from the line of [Nicholas Xiang] with Nomura. Please go ahead.

Nicholas Xiang - Nomura

Hi, Jack.

Jack Lai

Hi.

Nicholas Xiang - Nomura

Can you hear me?

Jack Lai

Yeah.

Nicholas Xiang - Nomura

Hello. Yeah. A couple of questions regarding the debt profile. Can you just elaborate more on the debt maturities on a quarterly basis for the next maybe two to three quarters, like you know, based on the existing 10 years profile, how much is coming due on a quarterly basis? This is question number one.

Question number two, if I look at the balance sheet, like the equity is really declining to a very small, not balanced level. And I understand the company just in terms of equity investors. Do you have other plans to boost up your equity capital? That’s a second question.

The third question is like, we read from some local newspapers regarding some smaller banks sue you guys in a local court, one, will you -- would you be considering and kind of onshore debt restructuring just to lower your financial burden? That’s it.

Sam Tong

Well, basically, we have about $2 billion of short-term debt that will come in mature within four quarters. So, on a quarterly basis maybe somewhere about $450 million we have to work on, other to paid off or to refinance. And of course that we work mostly right now maintain very good relation with our banks, with all the major banks from China that we have been able to refinance a 100% for those mature loans.

And certainly, that’s we are continuing our efforts seeking for strategic investors that may bringing more, fresh capital money that can also improve our capital structure. And certainly some of the money is also can be use to retire some of the debts.

And as far as some of the news that you read, I just, I suggest you do not believe all the news you read on the internet, so far that we maintained still very constructive relationship with our banks. We have very constant contacts with our banks and received a messages we have respond to them and just coming up nobody that we can resolve in a very peaceful manner.

I think that we still made very, very positive relationships. We believe that we are still making our obligations and we anticipate that we still continue to work hard to assure that all the maturing debt will be refinanced or paid off at the time of maturity.

Nicholas Xiang - Nomura

Okay. And just to clarify, there is a -- there was pretty long article regarding some restructuring of the onshore trade liabilities such as like a may be haircutting some of the trade payables. Can you just double confirm like, is that sure, this is some of the initiatives you have been taking, just to reduce the financial burdens?

Sam Tong

Well, we do work with our vendors very closely and in many cases that, because of time is very tough and because we work with them we will ask for discounts, because we have been good customer for them. And some of the strategic suppliers, they are actually very friendly and working with us, and provide such discounts, and we are receiving some benefit from some discussions. But, again, this is on a one-to-one basis and certainly that will be helpful in a long run that to reduce our burden and also, probably, to help us to improve the cost structure.

Nicholas Xiang - Nomura

Okay. Understood. I have a last question is regarding your head rooms of unused credit lines. Can you give us the rough number, like how much unused credit lines you have and which are the major banks provide you these head rooms?

Sam Tong

Well, we have probably somewhere about 10 to 13 banks they provide line of credit which approved somewhere between probably $3.2 billion to $3.8 billion, which will somewhere about, I think about $2.5 billion, $2.6 billion, which implies that we still have, probably somewhere $1 billion of line of credit untapped.

However, at this moment that we have no plan to increase to draw and use line of credit, however that we are using those lines to help us to refinance, which means that we might using different institution money to pay for some of current loans, so in real world we swap some loans between the major banks among China commercial banks.

Operator

Our next question comes from the line of [Shea Yang Yu] with China International Capital Corporation. Please go ahead.

Shea Yang Yu - China International Capital Corporation

Hello. Thanks for taking my question. My question is that, I notice that the growth margin in the third quarter, excluding the one-off items turns positive, right. I would like -- would you please clarify the reasons behind it, is it major mainly due to the higher ASP for M2 wafer you just mentioned or just would you kindly give me some more details about it? Thanks.

Jack Lai

During the quarter, we have realized some of the revenues and other income from couple of major customers, actually they did not realized their contact, as a result we received some compensation for the contract they did that four field, so that contributed to additional revenue and same time that also help us to increase our bottom line.

Shea Yang Yu - China International Capital Corporation

Okay. Thanks. And another question, would you please kindly provide any details on the progress of your discussion or negotiation with the strategic investors, please?

Sam Tong

Well, we are continuously working with different potential investors and one of that will be come from like North America. They are major industry player that we very much like them to join us to work with us on a long-term basis. The discussion has been carry and it looks very positive. However, it’s very big investment, that’s why our company field engaged more discussions.

In a same time, from domestic investors we also encounter with maybe two to three major corporations in the industry and they’re all going to express very high interest in joining LDK’s business.

And at this moment, not clear offer has been putting under table yet, but we still carry on these discussions with these two, three major Chinese players, as well as one major player from North America.

Shea Yang Yu - China International Capital Corporation

Okay. Thanks very much. That helps.

Operator

There are no further questions in this queue. Management, please proceed.

Xiaofeng Peng

Thank you for participating in today’s quarterly earnings call. We appreciate your continued support to LDK Solar. We look forward to meeting you again in next event. We wish you all a nice day and Merry Christmas.

Operator

Ladies and gentlemen, this concludes the LDK Solar Company third quarter 2012 earnings call. If you'd like to listen to the replay of today's conference, please dial 800-406-7325 or 303-590-3030, with the passcode 4574985. Thank you for your participation. Ladies and gentlemen you may now disconnect.

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