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Suntech Power Holdings Co. Ltd. (NYSE:STP)

Q3 2009 Earnings Call

November 19, 2009; 08:00 am ET

Executives

Zhengrong Shi - Chairman & Chief Executive Office

Stuart Wenham - Chief Technology Officer

Amy Zhang - Chief Financial Officer

Steven Chan - Chief Strategy Officer

Rory Macpherson - Director of Investor Relations

Analysts

Burt Chao - Simmons & Company

Ming Shui - Piper Jaffray

Satya Kumar - Credit Suisse

Sanjay Shrestha - Lazard Capital Markets

Lu Yeung - Merrill Lynch

Sunil Gupta - Morgan Stanley

Rob Stone - Cowen and Company

Nitin Kumar - Nomora Singapore

[Dan Reef] - Collins Stewart

Parnab Sarmah - Daiwa Securities

Kelly Dougherty - Macquarie

Mehdi Hosseini - FBR

Sam Dubinsky - Oppenheimer

Emily Liu - [RAC Research]

Paul Leming - Soleil Securities

Gordon Johnson - Hapoalim Securities

Operator

Good day ladies and gentlemen and welcome to the third quarter 2009 Suntech Power earnings conference call. My name is Eric I’ll be your audio coordinator for today. (Operator Instructions)

I would now like to turn your presentation over to Rory Macpherson, Director of Investor Relations. Please Proceed.

Rory Macpherson

Hello everyone and welcome to Suntech’s third quarter 2009 earnings conference call. My name is Rory Macpherson, Suntech’s Director of Investor Relations. From Suntech on the call today we have Dr. Zhengrong Shi, Suntech’s Chairman and CEO; Steven Chan Chief Strategy Officer and President of global sales and marketing. Dr. Stuart Wenham, Suntech’s Chief Technology Officer; Amy Zhang, our Chief Financial Officer; also Ian Tu, our Senior Financial Analyst who will participate in the Q-and-A following Dr. Shi’s closing remarks.

Before we continue, during this conference call, we will make certain forward-looking statements, in an effort to assist you in understanding the company and its results. The forward-looking statements will be made under the Safe Harbor Provisions of the US Private Securities Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties; as such Suntech’s future results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our earnings release issued today and our SEC filings.

Suntech does not undertake any obligation to update any forward-looking statement except as required under applicable law. To enhance our presentation of information and data during this conference call, we have provided a set of PowerPoint slides, which we’ll refer to as management delivers their prepared remarks. This presentation is posted on the main page of the Investor Center of our website.

As a reminder, this conference call is being recorded and the webcast replay will also be available on the Investor Relations section of Suntech’s website after this call. Please make note that all figures mentioned during the conference call are in US dollars.

I will now turn the call over to Suntech’s Chairman and CEO, Dr. Zhengrong Shi.

Zhengrong Shi

Hello and thank you for joining us today. Please turn to Slide 3 of the third quarter presentation. We are very pleased to announce record shipments and a strong bottom line growth in the third quarter of 2009. Our revenue increased 47% quarter-over-quarter to $473.1 million on the back of record shipments growth of 67%.

Our net income also roughly tripled from $10 million in the second quarter to close to $30 million in the third quarter. This is excellent performance and it demonstrates our ability to leverage the largest crystalline silicon solar production base to drive both revenue and earnings growth.

Today, I’ll outline the reasons for the strong demand that we are seeing, give you some guidance on industry trends and discuss our original sales efforts. The third quarter is generally a very strong quarter, as customers rush to install system before end-of-year subsidy adjustments. This year, the seasonal rush was exacerbated by rapid price declines and a subsequent improvement in project returns. The ongoing improvement of the global project financing environment and the latent demand due to our seasonally low installations in the first half of 2009.

Due to the collective rush to develop project in all markets, we have been operating at full utilization since mid August and we still haven’t been able to meet the customer demand for our product. In fact, we expect the strong demand to continue into the fourth quarter around 10% sequential shipment growth. As a result, we have decided to increase our earning shipment guidance to a range of 640 MW to 660 MW from 600MW previously.

More on guidance, a little later in our remarks. Another trend that we are seeing is the deceleration of ASP decline, why ASP failed by roughly 15% in the third quarter. It was to the lower end of our expected range of 15% to 20% and we expect that with only around 10% decline in the fourth quarter. We also expect that ASP may stabilize or even increase in early 2010.

With significant price reduction, we are finally starting to see electricity in the market and the demand is responding. The result in price stability gives customers the confidence to move forward with their procurement plans and it should lead to more stable demand growth. I would now provide more detailed update of our different geographic markets and discuss the policy environment as it impacts the solar industry.

Please turn to slide 4. Europe remains the cornerstone of our revenue growth representing more than 76% of our total module sales during the quarter. Germany continues to be our largest single market with Europe representing about 44% of total module sales during the quarter as customers hurried to install products before the end of calendar year 2009.

In addition to Germany NU feed-in tariff cut of about 10% there have been numerous reports of a further potential feed-in tariff cut occurring at some point in 2010. While this has not been confirmed, the risk of additional cost is likely to continue to drive strong demand in Germany until there is the clarification of the solar policy, and we have to mitigate the seasonality impact that we normally see in the first quarter of 2010.

Regardless of the size of any additional subsidy adjustments in Germany, we continue to have lot of confidence in German demand as all levels of solar value chain are represented in Germany leading widespread employment opportunities and growing solar exports. It seems roughly 70% of the jobs in the solar sectors are in system installations, we believe that government will continue to support this strategic cleantech sector.

Elsewhere in Europe, we continue to pursue early and strategic entry into emerging markets and we are encouraged to see diversification of our sales in the third quarter. The most rapidly growing market in Europe was Spain, France, the Belarus region and the Czech Republic, all of which more than doubled sequentially and represented around 4% to 8% sales each.

We expect all of these markets to continue to expand as a percentage of sales in the fourth quarter. Suntech continues to be seen as the most affordable brand among tier 1 modules and this sustainable balance between quality and affordability has allowed us to enter many emerging markets ahead of many of our peers.

Another key reason for our success is our commitment to building a world class sales and service infrastructure that supports all of our customers in their local languages and a local time zones.

To this end, we have of course reported our work force at Suntech Europe with particular focus on senior management positions and customer related function such as sales, marketing and after sales support. We have had excellent feedback about our enhanced service capabilities which help to differentiate Suntech as a truly global player. Please turn to slide five.

Turning to China, we are very excited about the emergent and long term potential of the Chinese solar market. We have a assembled one of the largest and the most capable system integration teams in China and are continuing to gain traction in our home market.

During the quarter we completed CECIC China’s first utility scale solar project with strategic partner, which has a capacity of 10 MW, and are to displace approximately 100,000 tons of carbon emissions each year.

We also initiated another 10 MW project in Jiangsu Province with Huadian, one of China’s top five utilities. The most notable aspect of this project is that it will qualify for Jiangsu’s provision of feeding tariff upon completion and a connection to the electric rate. This landmark solar province will demonstrate the viability of solar in China to the government utilities and energy users and will boost Suntech’s positioning as a leading solar company in China.

In addition to utility scale solar projects, there are two other solar policy stimulating demand. The fist is the national solar rooftop program and we’re very pleased to have won roughly 20% of the 91 MW of solar project approved by ministry of finance.

We have already supplied 4 MW of this project, and target to complete the remainder by mid 2010. This program is designed to implement rooftop and integrated installation across China to increase the energy efficiency of buildings. So, our unrivalled expertise in building integrated solar system should position us to win a healthy share of any future project supported by this program.

Secondly, a recent update on China Golden Sunshine program stated that 294 solar project totaling 642 MW have been approved for development within the next two to three years giving us system integrational strength and excellent brand recognition in China, we also expect to be one of the largest beneficiaries of this opportunity.

Both of these programs, our importance in those, from the Chinese government that it is serious in its commitment to promote renewable energy and support solar. Considering that our system integration operations are in a ramp up phase and the china market is extremely competitive we expect that this business segment will initially have around a breakeven gross margin however we believe this is a worthwhile investment.

Early in a targeted project development in China where you never have to set the foundation for rapid sales and market share expansion. It will also enable us to develop a leading system integration capability and build relationships with key government and project development partners that will facilitate long term growth. We believe this will be particularly valuable as this 10 MW project translates into multi 100 MW contract in the next few years.

As we continue to improve our technology and reduce our cost structure we believe that our China based system business will contribute significantly to boost top line and bottom line growth. In addition we believe that other provinces in China will follow Jiangsu lead and introduce fitting tariffs higher than the amount currently being considered by the central government.

Before I turn the call to Steven Chan to discus the US, I would like to emphasize our confidence through direct growth in the solar industry. With prices declining by more then 40% in 2009, solar energy is becoming increasingly competitive with the traditional energy industry.

As the new cost comparison data fit us through to government worldwide we expect to see great policy support and a new market open. Based on current or projections we expect at least 75% shipment growth in 2010, with Suntech’s differentiated ability to offer superior product quality, global service and technological innovation while maintaining low cost manufacturing, we believe that we are well placed to serve the next generation of solar users.

Now, I would like to turn to Steven Chan for updating our development in North America, Steven.

Steven Chan

Thank you Dr. Shi. Please turn to slide seven. I am pleased to announce that third quarter shipment to North America was the highest in Suntech history, up over 100% from previous quarter. We credit the success in part to the establishment of our North American partner programs.

This program was based on feedback in collaboration from our network of 200 plus solar installer across the country and it’s designed to help dealers generate more sales. It offers dealers various incentives, a co-marketing fund, training and services and financing programs.

In addition to our improved channels for the residential and commercial markets, we have also made significant inroads in the utility market, which we believe will be the largest sector of growth in the US market in 2010. Our recent sales contract with the enXco, the US based energy project division, an EDF Energies Nouvelles Company, France’s primary utility company.

This contract provides for up to 150 MW of modules for their global needs. This is a great example of our penetration in the North American utility market. enXco is focused on supplying solar modules to the growing utility market in the US and Canada. Our relationship with them will help our ability to improve our track-record and brand recognition among North American project developers.

To help further drive growth, we recently introduced a new utility-scale Reliathon PV system. Reliathon features a combination of technological innovations that will help reduce balance of system costs, improved system reliability and increased project returns for our customers. The Reliathon modules come with the industry leading warranty that provides annual power output assurances and warranties our customers an additional 13.8% of power output over the life of the system.

The entire Reliathon system is designed to be streamlined for fast, less expensive installations and includes a variety of innovations ranging from interlocking frames to fast-installing U bolts, to integrated grounding. All of this translates into fewer parts, less labor and up to a 10% reduction in total system cost. We will continue to focus on balance of system innovations such as Reliathon and to accelerate our roadmap towards growth parity.

As further evidence of our commitment to the North American market, this week we announced the location for our new 30 MW manufacturing facility in Phoenix, Arizona, making Suntech the first Chinese cleantech leader to bring manufacturing jobs to America.

This facility will not only reduce the time, cost and emissions associated with long distance shipping will also help the local economy by creating over 75 jobs in its first year of operations with an expectation to double that number by early 2011 as the US solar market expands from its current level of about 400 MW to 2 GW in the next two years.

We expect to begin production at the Arizona plant in the third quarter of next year. We are also very excited by the Ontario market with the new feed-in tariff. Working together with Ontario partner companies we have already built a good pipeline for next year.

I would now like to turn the call over to Dr. Stuart Wenham for an update on our technology.

Stuart Wenham

Thank you Steven. Please turn to slide 8. Let me take this opportunity to offer some insight into our technological advancements in this quarter. Firstly, we are pleased to note that Suntech has set another world record for multi-crystalline module efficiency accredited by Fraunhofer Institute and reported by the [Wiley] Journal progress in photovoltaics.

This record of 16.5% was achieved with a standard commercial module. Surpassing the previous record held by Sandia National Laboratories of 15.5% which was achieved by a handcrafted research module. This new record was achieved using Suntech’s cutting edge photovoltaic technology which routinely achieves cell conversion efficiencies well over 17% for multi-crystalline silicon.

Now, I will give you an update on our Pluto retrofit activities. Due to unexpectedly high demand for our standard modules during the second half of this year and the continued high utilization of our standard production lines expected into next year we have developed an alternative method of retrofitting these lines that will allow us to avoid disrupting our standard manufacturing or simultaneously increasing our Pluto capacity. We have also decided to add some new Pluto production lines to support our predicted shipment growth in 2010.

To sum up we now target to increase our current Pluto capacity from a 100 MW at present to 450 MW by the middle of 2010 of which 250 MW will be through retrofitting existing lines, and 200 MW will be through new capacity. In terms of 2010 shipment we are still in the process of optimizing production and expect to ship around 15 MW per quarter in Q1 and in Q2.

In the second half we expect to quickly ramp up production and will give further guidance next year. We are very excited about the performance of the Pluto Technology in large scale production and will keep you updated on the roll out.

I will now turn it over to Amy Zhang for her financial review. Thanks Amy.

Amy Zhang

Thank you Stuart. Hello to everyone on the call, please turn to slide nine to look at the income statement. Net revenue for the third quarter were $473.1 million approximately 47% higher than our second quarter 2009 result of $321 million. In addition to the factors which Dr. Shi has mention for the demand growth during the quarter another major reason for the increase in revenue has been Suntech’s ability to benefit from improvement in project financing.

As the credit environment has improved in Europe, over the past several months European banks have become more active in their lending policies towards solar projects. However, as solar are calculated with a 25 year life built into return on the investment projections, and bankers are becoming increasingly exposed to Solar Project. They are increasingly selective of the modules used in the project they help to finance.

As the largest crystalline solar company in the world, Sunteach is routinely short listed as one of the most highly bankable manufacturers in the industry. This bankability has allowed us to move into emerging markets faster and establish brand recognition in areas where customers are just starting to form their product loyalties. We see this as a key competitive advantage that will enable us to expand our customer base and market penetration.

Our gross profit was $84.1 million and gross margin was 17.8% compared to gross profit of $59.7 million and gross margin of 18.6% in the second quarter of 2009. But slightly lower gross margins were mainly due to close to breakeven gross margin in our systems integration business in China that has been implementing some of the China’s first utility scale solar project.

We are confident that we can generate better profitability as the scale of this business ramps, and as our lower cost structure progressively during the next few quarters. We are pleased to note that our core wafer to module business achieved a gross margin of 20% about 1% higher than in the second quarter.

Even though we are ramping in our China based system business we except our corporate gross margins to stay relatively flat as improvements in our cost structure offset moderate ASP reduction. Operating expenses for the third quarter of 2009 were $39.3 million or 8% of revenues compared to $38.6 million or 12% of revenues in the second quarter of 2009. The decrease in OpEx as a percentage of revenue was a result of strong revenue growth and a net reversal of bad debt provision of around $3.6 million.

Income from operations was $44.8 million and operating margin was 9%, in the third quarter of 2009, compared to $21.1 million and operating margin of 7% in the second quarter of 2009. Net interest expenses were $23.5 million in the third quarter of 2009, compared to net interest expenses of $24.3 million in the first quarter of 2009. Please note that, similar to Q2, $11.3 million of this was non-cash interest expense, primarily related to the SASP codification 470-20-65 related to the accounting treatments of our convertible notes.

Foreign currency exchange gain was $10.5 million in the third quarter of 2009 compared to a gain of $17.5 million in the second quarter of 2009. The foreign currency gain in the third quarter was primarily related to the appreciation of the Euro versus the US dollar. Net income attributable to the holders of ordinary shares for the third quarter of 2009 roughly tripled to $29.8 million or $0.16 per diluted ADS compared to net income of $10 million, or $0.06 per diluted ADS in the second quarter of 2009.

The major non-cash related expenses were share-based compensation charges of $2.8 million, the $11.3 million of non-cash interest expenses that I mentioned earlier, and depreciation and amortization expenses of $15.7 million. Capital expenditures, which were primarily for the construction of our thin film production facility in Shanghai, and other infrastructure projects to support expansion of Pluto capacity, totaled $25.4 million.

Turning to the balance sheet highlights on slide 10. Our cash and cash equivalents plus the short term principal guaranteed investments amounted to $855.7 million at the end of the quarter up from $760.5 million as of June 30, 2009.

Now, looking at a few other items in the balance sheet some of which appear on slide 10; accounts receivable increased by a $128 million to $420.4 million as of September 30, 2009. Day sales outstanding improved to 81 days in the third quarter compared to 83 days in the second quarter of 2009. Growth of the accounts receivable is primarily due to the fact that the majority of the revenue was achieved in the second half of the quarter.

Of the accounts receivable a $112.1 million was due from GSF investee companies compared to a $108.4 million in the second quarter. The increase was mainly due to the re-evaluation resulting from the increase of the Euro rates. We expect to collect accounts receivables related to GSF investee companies before the end of the year.

Well inventory increased by $14.8 million to $284.5 million in the third quarter of 2009. Our inventory days improved from 94 days in Q2 to 67 days in Q3, this is in line with our increased production rate and a greater amount of goods in transit. Accounts payable increased by $76.7 million to a $196.8 million as of June 30, 2009. As a result accounts payable turnover days increased from 42 days in second quarter of ‘09 to 46 days in the third quarter of 2009.

Now, let’s turn to the guidance on slide eleven. We currently expect shipments to increase by around 10% sequentially in Q4, as project developers continue to strive to install systems ahead of feed-in tariff deadlines.

Gross profit margin for the core business in the fourth quarter of 2009 should be relatively flat compared to the third quarter. As a result of stronger than anticipated performance in Q3 and higher shipments in Q4 we have revised our full year 2009 shipment target to a range of approximately 640 MW to 660 MW from our previous guidance of 600 MW.

CapEx should be approximately $120 million for the full year, for 2010 we expect at least 75% shipment growth versus 2009. As a result, we plan to expand cell production capacity by 400 MW for a total of 1.4 GW by the middle of 2010 of which 450 MW will be Pluto enabled. Accordingly, we anticipate CapEx will increase in 2010 to around $200 million.

This concludes our prepared remarks for today. At this time we will now open the call up for questions. Operator, please go ahead.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Burt Chao - Simmons & Company.

Burt Chao - Simmons & Company

First just a couple of housekeeping questions; can you provide shipments in the quarter to your core business and then also shipments potentially; I don’t assume you had anything to GSF, but I wanted to double check.

Amy Zhang

Hi, this is Amy, we normally don’t provide shipments for the quarter, and also I can confirm that there is no shipment to GSF in Q3.

Burt Chao - Simmons & Company

Did you ship anything internally to China?

Amy Zhang

I think according to the rules, realizing revenue based on the percentage of completion we shift around 12 MW to Chinese project.

Burt Chao - Simmons & Company

Great, and then on US cost, actual real quick on GSF Amy, the accounts receivable you still haven’t received most of the money due from GSF, what makes you confident that by the end of this year it happens versus say in the Q1 and Q2 of next year?

Amy Zhang

Yes, I think majority of the dues, which is more then 35 MW worth, which actually shipped at the end of Q1 and then another 5 MW shipped at the beginning of Q2. By that time we had already received as part of our duty process the term sheet and mandates from the club deal being arranged for GSF project companies.

It is a club deal participated by six banks and actually the progress of the project financing has been slower than what was anticipated and by this time of the year they have successfully collected at least four signatures out of the six banks that has committed to participate.

According to the call we have had with them there is very high confidence for GSF to get the rest of the two signatures. So, to allow them to make the draw before end of the year and once the draw is made, the first thing would be final settlement of the outstanding accounts receivable.

Burt Chao - Simmons & Company

Then, just touching really quick on the US expansion, maybe you Amy or Steven, can you kind of quantify the cost of building this facility and how much you’ll actually save. I know there is this impact of less carbon emissions, but with shipping costs as low as they are from China right now, can you kind of give a breakdown of capital cost and then what you think it will save on a per watt level by selling into the US market from the US market.

Steven Chan

Sure Burt. This is Steve. So, we will spend about $10 million for the initial phase and if the market continues to grow as we think it will, then we’ll raise the amount of CapEx spent from there. That will enable us to build a 30 MW facility. You’re right we will definitely save on logistics and the shipping.

Then, we’ll also actually have incremental revenue because the customers that we’ve already spoken to that are willing to pay a bit more for the product because it is made in the US and there are also projects in the US that are specifically speced for Made in the US modules. And so, we actually feel that, financially, we are actually doing quite well with this decision to locate the facility in the US.

Burt Chao - Simmons & Company

Then, one last question, sorry for the long one. On Pluto, Dr. Wenham mentioned you had a strong demand for your traditional products and therefore you weren’t able to convert as much of the Pluto line that I assume you meant, you had a strong demand, so you didn’t want to take any things offline as opposed to customers wanting traditional and not wanting Pluto modules, right?

Steven Chan

Absolutely, I mean I think that right now I would say since August we’ve been more or less fully utilized on our lines. And so, I think what Dr. Wenham mentioned is just the sheer fact of us just scrambling to meet customer orders and, so that’s something that we prioritize first.

Burt Chao - Simmons & Company

And so there has been no or limited pushback from any customers not willing to adopt a new technology like Pluto. I mean for most part, it is still widely accepted?

Steven Chan

Absolutely.

Operator

(Operator Instructions) Your next question comes from the line of Jesse Pichel - Piper Jaffray.

Ming Shui - Piper Jaffray

Hi, this is Ming Shui for Jesse Pichel. Thanks for taking my question. What is your Q3 ASP decline? And also, you guided to 75% shipment growth in 2010, what region do you see the growth is from and also what kind of ASP decline do you assume?

Zhengrong Shi

I think from Q2 to Q3, the ASP decline was about 15% and we see ASP for Q4 there will be around 10% decline. So going forward, we see the ASP is actually quite stable even has potential to go upwards in Q1. And next year in our shipment growth, we are fairly confident that we can reach at least 75% of shipment volume growth and according to our customers demand.

Operator

Your next question comes from the line of Satya Kumar - Credit Suisse.

Satya Kumar - Credit Suisse

I just wanted to follow up a little bit on your 2010 guidance. What do you think the market growth is going to be for solar in 2010? And what do you think your geographical shipment mix is going to be in 2010?

Zhengrong Shi

Sorry. What’s your first question?

Satya Kumar - Credit Suisse

What is your growth prospect on the overall market growth for the solar industry in 2010, just given you are such a big part of the industry and you are guiding to a pretty high growth.

Zhengrong Shi

Okay. I think the market growth for 2010 at least has to be 50 plus percent and as proved in the past Suntech has been always grew at least 50% faster than industry average. So that’s why like again based on our customer requirements and demand of the product, seeing 75% volume growth is minimal.

Satya Kumar - Credit Suisse

Okay, and what geographies, approximately the big geography like, you had a chart that explained the Q3 shipments. Can you just give an idea off of that chart what 2010 shipments would look like in each of those geographies?

Zhengrong Shi

In 2010?

Satya Kumar - Credit Suisse

Yes.

Zhengrong Shi

Okay. I think in 2010, Europe still remain to be our major market, although our allocation to Germany where we declined to around perhaps 35%, and US allocation where we increased, and the rest of the Europe like Italy, France, Czech Republic will also increase compared to this year. And the rest of the markets like China Australia, Korea, Japan, will also increase because as we know Japanese market next year would grow to probably around 600 MW to 1GW. So, we see all major market will grow really fast

Satya Kumar - Credit Suisse

And lastly, what do you expect your Pluto Shipments to be in 2010 and can you give an update on your non-silicon cost road map please.

Zhengrong Shi

Okay, for Pluto shipment next year, we expect for the first half would be probably around 30 MW, and for the second half would be around 150 MW plus. And for non-silicon cost as of this moment I think for this quarter is probably about, fully loaded cost is probably about $0.60 per watt and we see this will gradually reduce with time, and by the end of next year, we should be about $0.50 per watt.

Operator

Your next question comes from the line of Sanjay Shrestha - Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets

A couple of quick questions Dr. Shi. How do you see the potential growth of Germany given the, should be the rush buying if you would ahead of the subsidy cut in 2010, and also a similar line of question, how do you see the potential growth unfolding in China given NDRC might announce something before year-end, might not announce, might only announce in March. So, can you talk about those two market dynamics of that?

Zhengrong Shi

I think there is like potential for German market growth is quite large, and given the ASP fall to the level, the IRR for rooftop investment is quite decent, even with consideration of FRT reduction next year.

So for China, the potential growth is also big. And as we just reported the rooftop system largely this portion will be done next year and the Golden Sunshine program will start also next year, and also we believe Chinese government will probably announce the utility scale feeding tariff sometime in the next few months.

Also in addition to that more and more provinces will provide feed-in tariff or subsidy such as Jiaangsu, we know Jiangsu this year is a subsidy for BIPV for rooftop and for ground mounting system, the FRT was quite decent respectively is about 430 amp kilowatt hour for BIPV, 3.7 for rooftop and 2.15 for ground mounting. So, I mean, at least we know five or six other provincial governments, they are in the process in announcing the similar type feed-in-tariffs.

Sanjay Shrestha - Lazard Capital Markets

So how big do you think China could get to, in terms of the demand number?

Zhengrong Shi

I would say next year minimum would be 500 MW in China.

Sanjay Shrestha - Lazard Capital Markets

Got it. A couple of follow-up questions if I may. So, you expect Germany to be a pretty substantial growth the next year but obviously your allocation to Germany is going to go down. Help me understand that, because you probably would make more money, better returns there next year. Is that along the lines of your thinking that ‘011 might not be as a good of a year in Germany and that’s why you have to start diversifying in 2010, is that the thinking there?

Zhengrong Shi

Because the allocation to Germany is lower because we have all of this is very loyal and important customer there. We have to keep their growth expectation. On the other hand Suntech has been always the market leader in diversifying our geographic presence.

So, because that is a space the global markets all grow and kick off such as, for example Australia, government just announced a very attractive feed-in-tariff. So, our presence there will be expanding very quickly and also, our presence in China as we have already reported and many other part of new market.

So, I think it is important for Suntech to make sure we will be the market leader, and develop the new emerging markets and always positioning our sales and establish ourselves in emerging market with our premium product. So, that has been always our philosophy.

Operator

Your next question comes from the line of Lu Yeung - Merrill Lynch.

Lu Yeung - Merrill Lynch

I have a question for Dr. Shi. Based on your estimate of Chinese market growing to 500 MW next year, how big is the utility scale market you think from the 500 MW? And also, will you be booking EPC revenue from those projects next year, and whether that will be generation type revenue for those solar projects?

Zhengrong Shi

Okay. Yes, I think the margin really depends on what sort of a market, as I will say for rooftop market the margin will be relatively high. So, like, for example, in rooftop feed-in tariff will be 3.7% per kilowatt hour. That’s equivalent to probably about $0.50 per kilowatt hour. So that’s quite a good feed-in tariff.

On the other hand, for ground mounting project and still like arguable, at this moment is talking about something between 1.1 to 1.2 UM per kilowatt hour. Although we still lobby the government to try to push it up to about 1.4, 1.5 kilowatt hour which will be more reasonable.

So, but for all the investors in China, for example, as most of them are state-owned investment, the investors minimum return of IR will be around 8%. Long term look at Chinese market I think this 8% internal return, minimal return will be the benchmark for the power structure in China. And next year of course we, our EPC business will be increased and we’ll talk separately about the EPC revenue.

Lu Yeung - Merrill Lynch

I see. One follow is, what give you confidence that China will announce the national feed-in tariff within couple of months? And also in terms of competition, one of your poly supplier has announced a joint venture with a government fund to setup expanding to the solar power projects?

Zhengrong Shi

Okay. Well, to be honest from Chinese industry point of view, we want to lobby government to give a more reasonable feed-in tariff, and if the feed-in tariff is not reasonable we will rather delay the announcement. So, on the other hand, we’ve also learned GCA got CIC investment in the company of about 20% and we also noted that intention is to try to develop a downstream solar power project.

I think many companies especially silicon partner seem to have such intention to go downstream. So, I think whether it’s going to be successful or not I think we will wait to see.

Operator

(Operator Instructions) Your next question comes from the line of Sunil Gupta - Morgan Stanley.

Sunil Gupta - Morgan Stanley

I have two questions, first on the system integrations business and maybe Amy would have these numbers. What is the revenue that you book for systems integration in Q3? You mentioned right now this business is not profitable, when do you expect this to be profitable and what kind of gross margins can it generate on a sustainable basis and then I will have another follow up.

Amy Zhang

Sunil, as you are aware we normally don’t disclose segment revenue due to it’s insignificance and less influential impact to the total consolidated revenue. But again, that’s what I said, it’s altogether 12 MW delivered, and also revenue recognized is in the form of EPC instead of module alone.

Also in terms of gross margin, definitely China is one of the most important emerging markets globally for solar. There is no reason and it wouldn’t make any sense if Suntech doesn’t or didn’t launch its footprint in China given that we are global number one, and definitely a leading company in China as well.

And I think with the economy of scale and also the critical mass of project, we are going to participate in 2010, I believe the total EPC gross margin would be around the mid teen percentage in gross margin in 2010.

Sunil Gupta - Morgan Stanley

The other question that I have is on the cost structure, and wanted to get Dr. Shi’s views on this. In terms of the basic cost in Q3 and you have mentioned in the past that you have some old utility to work through, but just wanted to see what the wafer cost was in Q3, what do you expect this in Q4 going into Q1.

And also on the non-silicon cost right now at $0.60, do we see a gradual complex introduction of the quarter until it goes on to 50 by the end of next year or do you think there’s a big step somewhere in that cost reduction roadmap? Thank you.

Zhengrong Shi

Well, Sunil, I think we reported in earnings release from Q2 to Q3 our silicon or wafer cost has been reduced by 20%. So, it’s actually faster than the FT at the time. So, as we discussed earlier we have been quite successful in renegotiate some of this contract which product is higher than the spot price. So, although at the execution level there is some lack in time, but I think we’re still doing pretty good job in keeping our silicon cost under control.

Regarding non-silicon cost, our non-silicon processing cost, as I’ve said, fully loaded cost is about $0.60, which includes processing cost and also shipping, a share-based compensation and everything is putting. So, I think compared to 12 months ago, I think is already about more than 15% cost reduction in this regard. So, going forward, given another 12 months, you are talking 15% or 20% in cost reduction. We’re very close to $0.50.

Sunil Gupta - Morgan Stanley

And on the silicon cost, what I was trying to find out is what do you expect for Q4 and Q1. Do we expect a similar reduction as you saw in Q3, 10% to 15% reduction per quarter for next two or three quarters?

Zhengrong Shi

I think like in the last 10 months, silicon-wafer price declined. It has been dramatic, as we know silicon price was $400 per kilogram and converse now it’s probably $60 or lower per kilogram. So, going forward, the cost will come down but I think at much slower rates.

Operator

Your next question comes from the line of Rob Stone - Cowen and Company.

Rob Stone - Cowen and Company

A couple of questions relative to the China system integration business; one is, will you be booking the system, the EPC revenue separately from the module portion and how should we think about of your 75% shipment growth? How much of your shipment will be in the system integration next year? Thanks.

Zhengrong Shi

Okay. I think, if you look at our Q3, EPC related business is about 12 MW. So, I think in Q4, we think of improving to around 25 MW and next year, EPC business is going to grow and we’re sort of looking about EPC volume next year, probably around 100 MW. So, that’s why it becomes appreciable portion of our revenue. So, then we decided to have separate revenue report.

Rob Stone - Cowen and Company

Will you count the marginal shipments related to your EPC business in the module category, affecting what maybe a blended ASP there or will be modules related to EPC be counted with the system integration revenue.

Amy Zhang

Hi Rob, this is Amy. The module related to EPC projects will be counted as part of the EPC revenue, and following the revenue recommendation role of percentage of completion at the EPC project revenue.

Rob Stone - Cowen and Company

Okay. So your roughly break even margin at the moment is a combination of whatever margin you are releasing on the modules plus the profit or cost on the immigration.

Amy Zhang

Yes, for the time being.

Rob Stone - Cowen and Company

Okay. A question related to GSF project. If these projects are still waiting for funding this quarter, can you say in what market they are supposed to be installed, and is there a chance that they won’t be installed until next year and we would therefore have to re-negotiate terms.

Amy Zhang

By the current visibility of the project financing, we don’t have that concern at all. The confidence of collecting the full amount which means GSF being able to make the draw out of the approved facility of project financing is still very high. I don’t have any concern regarding either revenue written down or AR by that provision whatsoever. We will be able to have the full collection of the outstanding AR by the end of the year.

Rob Stone - Cowen and Company

So, I am just curious in what country are these projects located?

Amy Zhang

It is mainly still for that 40 MW installation with the full permitted license for the great connection in Pulgia area in Italy.

Rob Stone - Cowen and Company

Okay. So there is less of an impact vis-à-vis at your end because the fit does not really change that much.

Amy Zhang

Correct.

Operator

Your next question comes from the line of Nitin Kumar - Nomora Singapore

Nitin Kumar - Nomora Singapore

Just one question, in terms of Pluto how should we see the ramp of it currently and what kind of, I mean when you are seeing roughly about 75% growth in the side bent, what portion of next year shipments would be from Pluto?

Zhengrong Shi

The Pluto shipment like as we got in last time this year we’ll ship 10 to 15 MW we’ll stay on track to fulfill that shipment, and next year it was just guided, for the first half we would ship about 30 MW and for the second half we would ship about 150 plus MW.

Nitin Kumar - Nomora Singapore

Second half it would be 150, and what kind of margin in comparison versus your normal module do you see there. I mean, what is the margin upside, is it because it’s roughly about 11% higher efficiency, could we see about roughly 2% point margin impact.

Stuart Wenham

Yes, look Stuart here. With regard to the costing of the two technologies relative to each other, the Pluto fills actually don’t cost us any more to make than our normal standard technology. And so, the performance increase that we achieve of 10% to 12% that will translate therefore into increasing margins.

Operator

Your next question comes from the line of [Dan Reef] - Collins Stewart.

Dan Reef - Collins Stewart

One is a real quick one; do you have the share count of both basic and diluted for the quarter and does the $11.3 million non-cash interest expense continue at a steady level in future quarters or does that vary with some factors like such as stock price or does it eventually run out at some point in 2010. Then I had a question about GSF.

Amy Zhang

In term of number of fully diluted basis number of shares, it’s around 182 million number share, and by looking at the non-cash interest expenses for convertible notes, we will have a reduction on that impact. When heave the redemption of the balance of the 0.25% CB on February 15, 2010.

Dan Reef - Collins Stewart

Now the GSF, you mentioned it’s 40 MW. Could you say, approximately how many projects that represents? And then, how many are currently being built and financed versus how many are still awaiting finances.

Amy Zhang

This 40 MW deal is now being financed by a total club deal participated by six banks. It is just one approval collected in the form of six signatures from six banks after going through the six different credit teams evaluation.

Dan Reef - Collins Stewart

Okay, so even though it might multiple projects, it is all going to financed through one lending facility,

Amy Zhang

Yes one club deal of six banks.

Dan Reef - Collins Stewart

When you were sold out in quarter, was there any thought given to re-purchasing the modules selling them to the market and then selling modules again when they actually need them?

Amy Zhang

No, I think as part of due date and before the draw is made, bankers need to see the stocks being there, see what’s being done and also even the detailed spec of the modules must stay the same as what we shipped and delivered.

Operator

Your next question comes from the line of Parnab Sarmah - Daiwa Securities.

Parnab Sarmah - Daiwa Securities

For Amy, the first question in on your short-term investment of $200 million, can you give me some details like where you have invested the $200 million?

Amy Zhang

You mean a short-term investment of $200 million?

Parnab Sarmah - Daiwa Securities

Yes, what type of instrument it is?

Amy Zhang

Oh actually it is just principal amount protected structural deposit in order to achieve high yield interest income, and the reason why I put that money aside is simply because we wouldn’t need it until February 15, 2010 which is mainly for the redemption of the outstanding CB that we are handling.

Parnab Sarmah - Daiwa Securities

Was it Chinese bank or some other bank?

Amy Zhang

It’s being currently taken care of by four different banks, both international ones and Chinese one.

Parnab Sarmah - Daiwa Securities

Okay got it. My second question is on strategy related questions. Dr. Shi, would you consider for the vertical integration at some point given some of your upstream companies are relatively hungry for cash at this point.

The second part is also like we have seen some of your competition in Germany or other places their cost structure is relatively high production cost structures, would you consider doing some sort of outsourcing business with them now so that you can probably ship more at some point.

Zhengrong Shi

You mean vertical integration?

Parnab Sarmah - Daiwa Securities

Yes, first part is about vertical integration, whether you will be doing any vertical integration going to the wafer quality, and second part is whether you will you be doing some doing some outsourcing deal for probably or some other competitors in Germany or other places.

Zhengrong Shi

Okay, I think you have raised a very interesting point, but to our belief has been, always I believe our existing model is correct, and doing w we are doing like we have virtual integration model.

The upstream virtual integration, and then we have flexibility in upstream material purchasement, and especially in the bull market I guess even believe our current model should even work better. I think, as a matter of fact, some vertical integrate companies start to disintegrate their model. So I think that probably will prove the point.

Secondly, whether or not we should do OEM to expand our delivery volume to satisfy customer requirement, we will say we very much controlled our product performance and quality, and so that’s why so far we did not do any OEM product because of our efficiency, performance, and quality control. So we are very careful about things like that. So far we don’t plan to do any OEM.

Parnab Sarmah - Daiwa Securities

Okay, got it. I have a question for Steve. Steve you have also mentioned about cutting down the balance of cost structure. Could you give us some color like by what basis for the large scale project now, and where you see that will be next one year down the line?

Steven Chan

Sure. So in the US we really feel like it’s really on the brink of achieving greatness as a market, and so Suntech, we really do feel that we are well in the leading position for that. So if you look at our results this year, we are probably going to be like 15% to 18% of the total market share and that’s up strongly from last year when we were about 10%.

Then, in addition, what we have done is we have built like a fantastic pipeline for future years, and so we are on a shortlist for about two gigawatts worth of projects for upcoming years, and most of those, , well let’s say all of those projects are actually utility scale projects ranging in size from say 35 MW Austin energy project all the way up like several hundred megawatts, and I would say probably next year we will probably see installations of at least 50 MW and it will ramp up steadily from there.

Parnab Sarmah - Daiwa Securities

How is the balance of system cost per watt basis look like for that project [Lanu], [Windenda] all that reductions in cost.

Steven Chan

So, I think what’s interesting is if you look at other parts, particularly Europe and even China right now, the balance of system cost there are cheaper. Because I think Europe has had like great experience of installing these large scale projects, and so, they are down to potentially slightly above a dollar what, and China is around that right now.

I think the US actually has a cost reduction roadmap to get there, and we actually contribute a lot to that with our reliance on product, but we are driving down the cost by like 10%. And so, I would say if you look forward 2 to 3 years, the US could also have a balance of system cost that are around a dollar or what for a fixed balance of systems.

Operator

(Operator Instructions) Your next question comes from the line of Kelly Dougherty - Macquarie.

Kelly Dougherty - Macquarie

Just a quick clarification first, your $0.60 processing cost is now all inclusive, you are not breaking out any kind of non-controllable cost like shipping, stock comp or things like that any more?

Zhengrong Shi

I would say like say like excluding others, the processing cost is probably around $0.57 per watt.

Kelly Dougherty - Macquarie

Okay, and that $0.50 that you target to get to by the end of next year that is all inclusive as well.

Zhengrong Shi

Yes.

Kelly Dougherty - Macquarie

And if we factor for your growth in Europe, the US, and the systems business in China, what do you think is a reasonable gross margin target for 2010?

Zhengrong Shi

Gross margin target?

Kelly Dougherty - Macquarie

Yes.

Zhengrong Shi

Our core business like from wafer to module, gross margin target should be, should be flattish.

Kelly Dougherty - Macquarie

Okay, flattish throughout next year as well?

Zhengrong Shi

Yes around 20%, yes.

Kelly Dougherty - Macquarie

Okay great and then just the final question. Maybe this is better for Amy. I just wonder if she can give us an update on what the delay is with the two banks who haven’t yet signed the GSF term sheet. And then if for some reason you don’t get all of the money before the end of the year, if there is a risk of any kind of accounting write down as we move into a new fiscal year, the fact that we are rolling into 2010, have any kind of impact from an accounting perspective

Amy Zhang

No, I think the delay is mainly because of the process and formality that the two Italian banks are going through, and I again don’t see any necessity of writing down the ARO revenue, whatsoever. It is just purely a question of time.

As you know in the past such a small volume of installation and project would not really financed in the form of club deal. It would be either in the syndicate loan or just a sole bank loan. But given the financial impact especially when the deal was really arranged at almost the most difficult time going through the financial crisis. In the end, it ended up being with this structure of a club deal which definitely has taken longer time to go through six different credit procedures and evaluation process and formality.

Kelly Dougherty - Macquarie

Okay, so it is not a particular term they have an issue with. It is just a matter of Italian bureaucracy at this point?

Amy Zhang

Yes, because according to what we heard, we didn’t hear any dispute on terms proposed. Everything seems to be all mutually accepted.

Operator

Your next question comes from the line of Mehdi Hosseini - FBR.

Mehdi Hosseini - FBR

As a follow up to the previous question given the bureaucracies with banks in Italy, I am just curious what gives the confidence that shipment next year could up 75% and despite the fact the some of the customers, European customers that reported last week, were still expressing frustration with how slowly the credit market is opening, that is my first question. And then second question for Amy, how should I think of the short-term debt of $1 billion, how are you planning to service that. I have one more follow up.

Zhengrong Shi

I think as we have seen since the beginning of the year up to today, yes we have fought and buy more than 40%. So, now, we actually see the increasing elasticity of the market response to this ASP fall, because in the past we have always believed this market is very elastic, when the Asp fall market grows.

Of course, in the first part of the year, financial processes did have an impact on that, but now like with returns becomes attractive, okay, and the people have more experience with investing in solar business, and also the ASP has fought dramatically, the fall of ASP will become slower, and I think when the demand is going up the ASP will hold its level even go up. So, I think that’s why the market is gaining momentum very strongly at this moment.

Amy Zhang

Okay, Mehdi this is Amy, about your close of $1 billion balance of short-term plus long-term loan. I think as you know Suntech definitely has taken the leadership of growth ahead of the industry average year-over-year basis. And, in the past we have by being based in China the access to the financial market is just relatively in a simple structure which is just a short term loan facility plus long term loan facility to finance the CapEx expansion because of our access to that facility in China and also relatively cheaper cost.

We have made the decision of growing our capacity just by simple structure of borrowing instead of anything else, and in the end it’s just a combination of decision made against cost and also dilution, and also debt level and things like that. In the end it’s just a decision made against all these elements.

I think given the current cash position in Q3 we made actually a positive operating cash balance of $47 million, and I don’t have any intention to increase the loan level at the end of the year, and we also have other options to finance our CapEx if we need to in the coming 2010. And, for the loan side we are planning to gradually repay and minimize that impact as well.

Mehdi Hosseini - FBR

Sure. And then regarding the flattish Q1 in terms of shipment, has that factored in the weather factor since last year the weather in Germany was worst than expected. How are you dialing that risk into your outlook, especially for Q1?

Zhengrong Shi

Well, this guiding, we provide these based on the business as usual. Of course there could be unexpected weather condition or whatever, that’s probably the forced mature type of situation. But on the other hand as we say like the next year our delivery to Germany percentage wise has been full compared to this moment. And also our diversified market in Southern Europe and U.S, Japan, Australia, and China and in the rest of the region, so I think we further mitigate possible risk resulted from abnormal weather.

Operator

Your next question comes from the line of Sam Dubinsky - Oppenheimer.

Sam Dubinsky - Oppenheimer

Could you disclose how much of your megawatt for next year is being sold to GSF? If I remember correctly they had a pretty big back log, and then I have a follow question.

Amy Zhang

Up till now we actually haven’t taken into consideration of any shipment to GSF so far, the shipment to GSF is purely depending on their progress of the project financing and the available fund to support the installation. But currently GSF has obtained full permitted license of 240 MW including this 40 MW we have already shipped, and also their pipeline is about 400 MW probably, still waiting for or queuing for approval. But our current plan has not included any shipment to GSF.

Sam Dubinsky - Oppenheimer

And what about shipment sold to Gemini Solar and what percent of ownership do you have in that entity? And then I have one last follow up question.

Steven Chan

Sure this is Steve. So Gemini’s 34 MW project, we are slotting that for shipment I would say late first half of next year into the second half. And our percentage ownership with that is 50%. So it’s a joint venture with renewal ventures.

Sam Dubinsky - Oppenheimer

Okay great. My last question is now you are expanding more into the US, you are doing a lot more systems business. How should I think about operating expenses as we head into 2010?

Amy Zhang

Should I take that. I think currently we are running at around 40 and I think going forward in line with the full realization of our diversified market presence in overseas countries. I think the normal run rate would be around $45 to $50 million.

Operator

Your next question comes from the line of Emily Liu - [RAC Research]

Emily Liu - RAC Research

I have a quick housekeeping question. Can you give me break down the CapEx $200 for next year. How much is for Pluto and how much for ordinary module capacity and is there any CapEx reach for [Sinctim], and also can you update us on Sinctim facility to megawatt how is that coming along?

Zhengrong Shi

I guess next year is in the $200 million half for retrofitting, half for new line.

Emily Liu - RAC Research

And Sinctim update.

Amy Zhang

Yes, the new lines would all be Pluto lines. No standard module lines.

Emily Liu - RAC Research

What about Sinctim update, when do we expect the product to be shipped?

Zhengrong Shi

Sinctim, okay. Sinctim, this year the shipment of Sinctium is minimal, is about 2 to 3 MW, and next year the full line production will be around 20 MW.

Operator

Your next question comes from the line of Paul Leming - Soleil Securities.

Paul Leming - Soleil Securities

My questions has been asked and answered, thank you.

Operator

Your next question comes the line of [Ned Erwin] - Hapoalim Securities.

Gordon Johnson - Hapoalim Securities

Actually it’s Gordon Johnson with Hapoalim Securities, thanks for taking my questions guys and congratulations on good shipment sequentially in the quarter. I guess first and foremost, Amy can you give us an update, I guess excluding this $10 million FX gain and this $3.5 million write back of OpEx and also looking at or excluding this $2.4 million contribution from associates, can you give us, I guess an idea of what your clean EPS would have been excluding this items?

Amy Zhang

You mean for Q4 or for next year?

Gordon Johnson - Hapoalim Securities

For this quarter.

Amy Zhang

Actually we normally don’t have that until disclosure of the EPS after excluding those items. Because EPS calculation definitely follow the US GAAP bottom line, so.

Gordon Johnson - Hapoalim Securities

Okay, I guess it look likes when we take this items the EPS would have been slightly lower. I just wanted to see if you guys had any idea of what the number would have been excluding these items. Okay so I guess I won’t get an answer there.

Amy Zhang

It’s all GAAP basis reporting and if you think that after excluding these numbers, you would run a result by yourself just to see what that EPS would be like, but it wouldn’t make any technical sense to have that kind of separate line reported or talked.

Gordon Johnson - Hapoalim Securities

And then I guess on the other receivable line, it looks like those went up considerably. Can you help us understand what was the reasoning behind that?

Amy Zhang

It’s normally the, for example. non-trade related money that can be collected from our partners or either some kind of deposit paid but that’s just the really short term and project case-by-case kind of recognition of other receivable.

Gordon Johnson - Hapoalim Securities

Okay, then on the OpEx. It seems like last quarter you guys said OpEx is going to be up as a percent of sales but it look like as a percent of sales OpEx was actually down, Following execution there but can you help us understand what’s the difference this quarter versus the original guidance?

Amy Zhang

I think the original guidance was talking about the absolute value going up because of our full recognition of OpEx in diversifying our market presence in other countries. And that’s when she with the increase or going back to normal top line, we definitely should enjoy this benefit of scale and economy of scale and also critical mass with adding up more top line to be sold and revenue to be realized, we actually don’t need to run our operating functions in parallel with the same growth of top line. This is definitely a benefit of economy of scale.

Gordon Johnson - Hapoalim Securities

I think, actually you guys said it would be up as a percent of sales, not absolute value. So, I guess that was really the good question. During the last conference call, you said it would be up as a percent itself, not as an absolute value.

Amy Zhang

I think if you really want to build the model, the quarterly run rate would still be at the range of $45 million on quarterly basis.

Gordon Johnson - Hapoalim Securities

Okay, so we should think about $45 million going forward.

Amy Zhang

Yes.

Gordon Johnson - Hapoalim Securities

Okay, and then lastly, not to beat this one to death. But on GSF, I just want to clarify, maybe this question has already been asked. But in the event that you guys potentially aren’t able to collect those cells on GSF, because I do remember during your Q1 call, you said that you would collect them before Q2 and it looks like that has been extended to the end of 2009. In the event you aren’t able to collect that, can you help us understand what the accounting impact could potentially be.

Amy Zhang

Yes, I think that that question has already been answered. As I said, the current term sheet waiting for the only two signatures from two banks, have all been agreed mutually. And it’s just purely a question of process and formality to collect these two signatures in order to make the final draw. So, I don’t see any exposure to the writing down of revenue or accounts receivable.

Gordon Johnson - Hapoalim Securities

Actually, one more follow-up, if I could then on that. Can you help me understand what gives you confidence? And the reason I asked this is because I am sure you guys saw what happened with another solar company earlier this week. Can you help us understand and give us confidence and what gives you confidence that you will definitely be able to collect on these receivables. Because, clearly, there is some risk to the accounting if indeed you are not able to collect.

Amy Zhang

Yes, I think just by looking at the nature of the license, it’s fully permitted license. Once the project is completed, it can be connected to the grids by the guarantee. So, the operating cash and everything else, the financial model has been all fixed and quite predictable.

Also with that, that too debt coverage ratio and everything else, it definitely has met the requirement of this club deal required by six banks. And also, by asking the detail of the negotiation of the terms there is no pending issue from the rest two banks, and actually the most difficult one already put their signature on paper.

So I don’t see any possibility of that kind of risk exposure to other companies. And in the end what happen to other company are still company based kind of accounting issue it doesn’t relate to and not relevant to our case.

Zhengrong Shi

And the accounting related to GSF would have been confident about it and so I think there shouldn’t be any heating issues here?

Operator

Ladies and gentlemen, this concludes our Q-and-A session for today. I would like to turn the call over to Dr. Shi for his closing remarks.

Zhengrong Shi

Thank you all for attending the call today. If there are any further question please contact

Amy, myself or other IR representatives, thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a good day.

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