LDK Solar (NYSE:LDK) completed a 3 year bond issue in the Shanghai market as a part of a program to refinance 3 billion yuan of short-term loans with medium-term instruments.  The fact that the company was able to so easily complete a debt offering has raised questions regarding the Chinese government’s involvement. According to BusinessWeek, LDK’s bonds are trading at around 50 cents on the dollar in Singapore, a yield of 49.5%.  This suggests a deeply distressed company and yet in China the company was able to issue bonds at a much more manageable yield of 6.8%. Analysts have suggested that the spread between the yields in the two markets is likely due to interference by the Chinese government, which has shown a willingness to provide credit to local solar companies.  Other Chinese players such as Suntech Power (NYSE:STP) may also be benefiting from such government-backed credit.
We have a $5 price estimate for LDK Solar which is about 8% ahead of its current market price.
LDK Solar has piled debt on to its balance sheet to finance its expansion over the past few years. The slump in the solar market and dropping polysilicon prices have dented the company’s financial position and raised questions over its ability to meet obligations. The Chinese government has come out in support of these solar companies with loan guarantees. This program has received much criticism from American solar companies, who complain that the government is unfairly subsidizing local firms.
Highly leveraged solar companies have been struggling to survive in the prevailing low-pricing environment. Three U.S.-based solar firms have declared bankruptcy in recent months, and we expect to see consolidation across the PV value chain over the next few quarters.Notes:
- LDK Solar Said to Sell 500 Million Yuan 3-Year Bonds at 6.80%, Bloomberg [↩]
- LDK Taps Shanghai Market After Singapore Plunge: China Credit, BusinessWeek [↩]
- LDK Solar And The Rigged Solar Panel Bond Market In Shanghai, Walter Kurtz, SeekingAlpha [↩]