Chapter 3

Where the Cash Sits

The roughly $2.0 billion of liquidity that anchors the case is real and, through the first quarter of 2026, barely eroding. But for a holder of the New York-listed ADS it is structurally distant: only $311 million sits at the Cayman parent, about $1.7 billion is inside the Chinese operating subsidiaries, $3.23 billion of subsidiary net assets are legally barred from being paid up, and dividends flow only when the subsidiary earns a profit — which it did not in 2024 or 2025 — losing about a quarter to minority holders on the way.

The floor is holding

At December 31, 2025 Daqo held $980.3 million of cash, cash equivalents and restricted cash plus $1,035.6 million of fixed-term deposits, with no bank borrowings and current assets exceeding current liabilities by $2,110.3 million [1]. Three months later the pile was intact: management reported about $2 billion of cash and highly liquid assets at March 31, 2026 and zero debt [2].

Sources: cash and deposits and restricted net assets, FY2025 Annual Report (Form 20-F) [3] [4]; parent cash and minority interest, Schedule I and Consolidated Balance Sheets [5] [6].

The floor is not eroding quickly. Full-year 2025 operating cash flow was a positive $49.7 million despite a $216.1 million net loss, because non-cash depreciation of $236.7 million and share-based compensation of $55.8 million more than covered the loss [7]. The first quarter of 2026 is a warning of how fast a bad quarter can bite: operating cash flow swung to negative $147.5 million as the company stockpiled unsold inventory rather than sell below cost [8]. Even so, headline liquidity held near $2 billion [9]. Inventory converts back to cash when it eventually sells, so the underlying operating burn at a cash cost near $4.5/kg is far smaller than a single quarter's working-capital swing implies. At any plausible pace, group solvency is a question of years, not quarters — which is the real strength of the balance sheet, and the counter to everything that follows.

Most of it is one tier down

The complication is where the money is. Daqo New Energy Corp. is a Cayman Islands holding company; its only material asset is a 72.8% stake in Shanghai-listed Xinjiang Daqo, carried on the parent's own books at $4,097.9 million under the equity method. The parent itself held just $311.2 million of cash at year-end 2025 [10] [11]. The other ~$1.7 billion sits inside the PRC subsidiaries — and $2,066.6 million of the group's liquid assets are denominated in RMB behind China's capital controls [12].

Source: parent cash from Schedule I; subsidiary balance is group liquid assets of $2,015.9M less the $311.2M parent balance [13] [14].

That the auditors required a Schedule I parent-only statement at all is itself the tell: it is mandated only when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets [15]. Here they do — comfortably.

Restricted inside China

The subsidiary cash is not fully fungible with the parent's. Under PRC law the group's Chinese subsidiaries are prohibited from distributing their registered capital, statutory reserves and the proceeds of Xinjiang Daqo's STAR-market IPO and follow-on offering — a restricted portion that amounted to $3,232.8 million at December 31, 2025 [16]. A further $172.3 million is locked in statutory common reserves that PRC entities must build from profits [17]. These figures are net-asset restrictions, not a cash lock-box, and the operating cash inside Xinjiang Daqo still funds the plants day to day; what they constrain is the amount that could ever be moved up to the Cayman parent as a dividend, loan or advance.

The upstreaming tap runs on profits

For cash to reach an ADS holder, Xinjiang Daqo must pay a dividend, and that requires distributable profit it is not currently generating. Its post-IPO policy commits it to distribute at least 30% of average distributable profit over the trailing three years — but only when profitable — and the group recorded no withholding tax on subsidiary dividends in 2024 or 2025 because the listed group made losses [18]. Two frictions apply even when the tap is open: dividends from a PRC subsidiary to a foreign parent carry a 10% withholding tax [19], and because Xinjiang Daqo is only 72.8% owned, roughly 27% of any dividend it declares leaves the group entirely, to its STAR-market minority holders.

The cash flow up to the parent shows the effect. Money reaching the holdco — captured by the parent's own operating cash flow, essentially dividends received plus interest — has collapsed as the subsidiary swung from profit to loss.

Sources: cash up to parent from Schedule I Condensed Statement of Cash Flows [20]; subsidiary dividend to minorities and parent buyback from Consolidated Statements of Cash Flows [21].

The pattern is coherent. In 2023, when the subsidiary was still profitable, roughly $700 million flowed up to the parent and funded a $485.9 million ADS buyback — while $303.7 million of the same dividend cycle left the group in cash to minority holders [22] [23]. By 2025 only $11.7 million reached the parent and the two authorized $100 million ADS buybacks stayed untouched [24]. The paused buyback that earlier chapters flagged is not only caution about the trough; it also reflects that the holdco has $311 million to work with and cannot cheaply pull more from China. Notably, the one repurchase still running is inside China — Xinjiang Daqo bought back $7.8 million of its own STAR shares from minorities in the first quarter of 2026, cash deployed at the subsidiary's much higher multiple rather than against the ADS trading near a fifth of book [25].

What it means for the ADS

The $2 billion protects Daqo the enterprise for years. It is a weaker per-share floor. Of the $5,916.3 million of consolidated equity, $1,509.6 million belongs to Xinjiang Daqo's minority holders, not to ADS holders [26]. Netting the minority's share out of the subsidiary cash leaves ADS holders a look-through claim on roughly $1.55 billion of the liquid assets — the parent's own $311 million plus about 72.8% of the ~$1.7 billion below it — or near $23 per ADS.

Sources: ADS price of $12.25 at July 2, 2026 (market data, as reported); book value and look-through cash derived from equity attributable to Daqo shareholders of $4,406.7M and 67.7M ADS outstanding (338.3M ordinary shares ÷ 5) [27].

The arithmetic cuts both ways, which is why it is worth stating plainly rather than as a verdict. Even after the minority haircut, the look-through cash of about $23 per ADS sits well above the $12.25 price, and the ~$0.8 billion market capitalization is below the group's liquid assets on any measure — so trapped cash and minority leakage do not, by themselves, explain a stock at 0.19 times book. The market is discounting something further: continued below-cost losses that could turn the slow burn faster, the friction and delay in ever getting China's cash to a New York shareholder, and the entity-list and convertibility risks that sit on top. The evidence points to a balance sheet that is a genuine solvency backstop but a soft per-share floor; the main risk to that read is a prolonged trough that forces the parent to inject its $311 million downward instead of returning it. What would change it, in either direction, is Xinjiang Daqo's return to profit — the single event that reopens the dividend tap, the buyback, and the bridge between the cash and the shareholder.