Bankruptcy Fears for China’s LDK Solar

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Marc Kenneth Howe
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Chinese photovoltaics leader LDK Solar (LDK) is headed for bankruptcy according to industry observers within China, due to its immense debt burden and a global downturn in the solar energy market.

China’s Nanfang Zhoumo reported on May 26 that bankruptcy rumors have plagued LDK in recent months, causing investors to seek to divest themselves of shares in the company and regional clients to suspend orders for the company’s products.

One of LDK’s leading investors, Guokai Jinrong, is believed to have sought buyers for its stake in the company since the start of 2012, with management heavily regretting its decision to invest in LDK in 2011, just prior to the solar energy market entering a slump after riding an unprecedented wave of growth.

LDK’s 2011 Q4 financial report, which at the end of April was delayed for several days, indicates that the company is mired in debt of U.S. $6 billion, and that annual interest payments alone amount to between $200 million and $300 million. Total Q4 losses were $589 million, marking the company’s third successive losing quarter.

This is a dramatic turnaround for LDK, which until recently was a leader in the Chinese solar energy sector, and whose 37 year-old chairman Peng Xiaofeng was once feted as an industry wunderkind. 

Peng was one of the youngest and wealthiest figures in China’s flourishing solar power sector, and LDK was for a brief period the world’s largest producer of photovoltaic multi-crystalline silicon. LDK was also the first company from Jiangxi province to be listed on a U.S. stock exchange, and the province’s second largest source of tax revenue.

The company’s ambitious high-debt growth model made LDK highly vulnerable to market vicissitudes, however, and the recent industry downturn may have done irreparable damage to the company’s prospects.

Despite the company’s woes, Peng has put on a confident front for both the media and investors, taking the stage earlier this month at a banquet for business partners and customers held in a five-star hotel in Shanghai’s financial district. In an interview with Nanfang Zhoumo, Peng dismissed the concerns of analysts by saying that “they have never seen a great company,” and compared LDK’s troubles to those encountered by Apple’s Steve Jobs a decade ago.

Peng has now pinned LDK’s hopes on the release of a new product the M2 high-efficiency multi-crystalline silicon wafer, and has informed key lenders that customers are willing to pay a premium of over 10 percent for the new product. Although other industry figures, such as Hu Huifeng, senior deputy general manager of Taiwan’s Neo Solar Power, have come out in support of this claim, analysts believe that the company cannot overcome its current predicament with the release of a single new product, and that given the poor state of the market LDK will be unable to service even the interest payments on its debt.

The flamboyant Peng is certainly no stranger to controversy or crisis. His decision to invest in a 15,000 ton silicon factory was criticized heavily by LDK insiders as well as external observers. Departing senior personnel have complained about management problems within LDK, with many decrying Peng’s headstrong style, lack of prudence, and cavalier attitude toward the opinions of others. The company also faced financial difficulties at the end of 2009, when LDK’s Q3 asset-liability ratio hit 85.15 percent, and its total bank loans reached $1.403 billion. Those problems pale in comparison to the company’s current $6 billion debt burden, however.

Rumors reported by Nanfang Zhoumo also allege that LDK Solar has already filed for bankruptcy protection with the Jiangxi province government, but that the application was refused due to the size of the company and its importance for the provincial economy.

Marc Kenneth Howe is a contributor to Renewable Energy World.


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