On May 17, 2023, Viceroy Research published a devastating report on Abalance (website), a Japanese solar panel manufacturer. Approximately 90% of the company’s revenues are derived from its Vietnamese subsidiary, Vietnam Sunergy Joint Stock Corporation (VSUN). Viceroy alleges the VSUN would de facto be a pass-through assembly plant for Chinese products. It serves the sole purpose of avoiding US Anti-Dumping and Countervailing Duties (AD/CVD).
Forced Labor Allegations
VSUN was acquired by Abalance in 2019 from China Sunergy Group (CSUN), a Nasdaq-listed Chinese solar panel supplier pretending to be a solar panel manufacturer. In reality, its business operations “were more akin to a chop-shop,” the Viceroy report alleges. VSUN‘s solar panel supply chain involvement would be limited to laminating cells into frames. The company would source their solar cells from Chinese suppliers with connections to forced labor camps in Xinjiang.
VSUN effectively functions as a laundering destination for restricted Chinese made solar panel components to the US, VSUN’s largest market. This loophole is closing
Viceroy Research report on Abalance
Abalance is only entitled to 43% of VSUN’s earnings and has failed to properly disclose to the other
shareholders of its most valuable asset or provide any justification for the arrangement.
Questionable Solar Manufacturing Facility
To address anticipated trade restrictions, Abalance is purportedly working on establishing a solar cell manufacturing facility in Vietnam, set to be finished by October 2023. However, local filings indicate that no construction permits for this project have been approved. Additionally, the projected cell capacity is significantly lower than the current output of panel manufacturing. On-site visits raise doubts about the project’s timely completion.
Viceroy claims that Abalance’s solar panels would be subject to crippling restrictions by the USA’s Department of Commerce (DoC), set to take effect in June 2024. These restrictions are aimed at companies in Vietnam, Thailand, Malaysia, and Cambodia functioning as pass-throughs for Chinese-made solar panels and components.
The short-seller report alleges that Abalance was identified by the DoC solar module AD/CVD investigation as circumventing AD/CVD orders, which have been in place since 2012. VSUN purportedly failed to respond to the DoC’s and was determined to be in breach of AD/CVD orders.
Viceroy Conclusion
Abalance‘s involvement in evading the US Antidumping/Countervailing Duty (AD/CVD) order leads Viceroy to believe it will be excluded from the US market by June 2024, if not earlier. The established connections between VSUN and CSUN are widely recognized. Viceroy anticipates that the U.S. Department of Commerce (DoC) will take action in this regard. Abalance relies heavily on VSUN, with 88% of its sales in FY 2022 attributed to this partnership.
Allegedly, there would be evidence suggesting that former partners of CSUN play a substantial role in the management of VSUN. Considering these significant risks, Viceroy believes that Abalance is not a suitable investment opportunity.
Share Price Collapse
After the Viceroy report came out, Abalance shares plunged 30%. The management has denied the allegations, but Viceroy provided further information in an update on May 18, 2023, which supports the allegations.
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