The city which is home to LDK Solar (NYSE:LDK) will help the company pay a part of its debts in an effort to keep the debt laden company afloat. According to reports, the city of Xinyu, in the Jangxi province, has agreed to repay the LDK’s loans from Huarong International Trust and Investment Corp.  The move will come as a welcome relief for LDK, which posted a heavy loss in Q1 2012 because of high production costs and the continuing weakness in the solar panel market. The company is expected to survive the downturn despite its heavy debt load because of government support.
We have a $2.30 price estimate for LDK Solar, which is at a 25% premium to its current market price.
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LDK is one of the largest manufacturers of solar equipment in China, employing as many as 28,000 workers in its facilities last year. The company’s size has fueled thinking that the Chinese government will not allow the company to go bankrupt. (See: LDK Solar Should Survive Downturn With Government Help) Solar companies have enjoyed a strong level of government support in China, giving them access to cheap credit and other forms subsidies as well. The support has become increasingly important with the downturn in the solar market resulting in major write downs and other losses for solar companies. The move from Xinyu’s local legislature comes as a welcome relief for LDK.
LDK had warned investors in its filings that its precarious debt situation could have significant ramifications. The company’s debt net of cash is close to $2.7 billion, in comparison to its present market cap of around 268 million. LDK is also continuing to make losses on its polysilicon production business where its costs of production are higher than market spot prices. (See: Trina Solar, LDK Solar Estimates Revised Lower On Tariffs And Weak Demand) The undertaking from the local government to help the company repay a part of its debt indicates that the government will step in if the situation worsens. The impact of the support in on LDK’s sales in international markets such as the U.S., where Chinese imports could be subject to tariffs is uncertain.
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