Incredible Shrinking Solar Stocks

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Doug Young

More clouds for solar sector

There’s a flurry of news coming from the embattled solar sector, led by a sharp cutback by Suntech (NYSE: STP) at its main US plant that looks suspiciously like it is being ordered by Beijing part of a government rescue plan for the struggling company. Meantime, JA Solar (Nasdaq: JASO) and LDK (NYSE: LDK) are struggling just to stay listed as their market values quickly evaporate. And in a rare but fleeting piece of good news, Yingli (NYSE: YGE), Trina (NYSE: TSL) and others are getting a temporary boost as they reclaim money they previously set aside but will no longer need to use as provisions in the US anti-dumping investigation against them.

Suntech Cuts US Jobs

Let’s start with the Suntech news, which looks intriguing because I suspect it reflects intense political jockeying behind the scenes as this former sector pioneer struggles to survive. Suntech says it will shutter two-thirds of the capacity at its plant in the US state of Arizona, bringing production down to just 15 megawatts from the capacity of 45 megawatts. (company announcement)

It blamed the cutback on the industry’s huge overcapacity and the higher costs of producing in the US versus China, and said the move will result in the loss of 50 jobs. It’s impossible to know what happened behind the scenes in this move, and the explanation of higher operating costs in the US is certainly logical and reasonable.

But the decision also sounds suspiciously like it was at least partly ordered by Chinese government officials who are now negotiating a rescue package to bail out Suntech and want to show their anger at the recent US decision to impose big anti-dumping tariffs on Chinese-produced solar cells. Up until now, Suntech had trumpeted this Arizona facility as proof that it was creating jobs in the US as well as in China.

Suntech had also said it could use its US facility to help it avoid the anti-dumping tariffs imposed by Washington. So its decision now to suddenly idle two-thirds of the plant’s capacity seems like a complete reversal of its previous message, leading to my conclusion that the move was at least partly engineered by Chinese government officials. If that’s the case, I wouldn’t be surprised if Suntech ultimately shutters the Arizona plant completely as part of its eventual restructuring.

Potential Delistings

Moving on to other matters, JA Solar and LDK have both put out announcements regarding their tumbling share prices that have put them in danger of de-listing. In JA Solar’s case, the company has just engineered a 5-for-1 reverse share split to bring its New York-listed shares above the $1 mark, a requirement to maintain their listing on the Nasdaq main board. (English article) Meantime, LDK has also announced it has been notified that its shares are in danger of de-listing after they also fell below the $1 level for more than 30 days. (company announcement)

LDK will most likely do its own reverse share split eventually to bring its shares back above the $1 level, assuming its shares are still worth anything when it finalizes its own rescue package now being hammered out with the government. These reverse splits may help each companies’ share price, but they do nothing to reverse the fact that their market valuations have tumbled over the last year and a half as the industry struggles with its worst-ever downturn. Both companies now have market caps of about $120 million, representing a tiny fraction of what they were worth before the downturn began.

Rare Good News

Lastly, we’ll look quickly at the rare piece of good news for the Chinese solar companies following last month’s US finalization of anti-dumping tariffs against them. That news has seen Yingli, Trina and presumably all the others say they will post one-time gains after some provisions they took related to the US tariffs were unnecessary. (English article)

These specific provisions were related to a part of the US investigation that would have made punitive tariffs retroactive back to 90 days before the actual decision. In the end, the US decided not to make the penalties retroactive, making previous provisions taken by the Chinese companies unnecessary. At the end of the day, however, these provisions were relatively small, totaling $13.7 million for Yingli and about double that amount for Trina. And of course these small one-time gains will do nothing to address the much bigger cash shortages and overcapacity now plaguing the industry.

Bottom line: Suntech’s cutbacks at its US plant could foreshadow an eventual closure of the facility as part of a government rescue package.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .


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