China Solar Update: LDK, Canadian Solar, First Solar & Sunpower
Let's start with the LDK news, as it's easily the most downbeat in this flurry of new reports. For anyone who doesn't follow the sector too closely, LDK is one of the weakest major players in an industry suffering through a massive supply glut. Its weak financial position has left LDK tottering on the brink of insolvency for much of this year, and the company is actually in the process of a slow and painful takeover by a coalition of state-backed Chinese government bodies. (previous post)
Its latest results show that both the pain and the broader retrenchment continue, with LDK reporting another massive loss of $137 million for the quarter, although that figure was actually an improvement over the loss of $253 million in the previous quarter. (company announcement) The company said it cut another 2,600 jobs during the third quarter, meaning its workforce is now about half of where it was at the beginning of this year as LDK tries desperately to conserve cash.
But its huge debt pile means there's really no way the company can survive without a government bailout, which is likely to be finalized by the end of next year's first quarter. Investors sold off LDK shares after the report came out, with the stock down 10 percent as many are probably betting their shares could become worthless under an eventual state-led takeover.
Meantime, western companies First Solar (Nasdaq: FSLR) and SunPower (Nasdaq: SPWR) have both announced new projects in China, as Beijing embarks on an ambitious plan to support its solar panel makers by building up major new solar power plants. (English article; First Solar announcement) First Solar said it will supply 2 megawatts of thin-film solar panels for a demonstration project in Xinjiang in far western China; meanwhile SunPower said it will form a joint venture to sell its solar panels into the China market. First Solar had previously announced it was setting up shop in China to take advantage of what is expected to be a major construction boom for new solar power plants over the next 5 years. (previous post)
It will be interesting to watch and see how First Solar, SunPower and the handful of other surviving western players do in the China market, where they will face stiff competition from local players like Trina (NYSE: TSL) and Yingli (NYSE: YGE). Both Washington and the European Union have taken recent actions to punish Chinese panel makers for receiving unfair support from Beijing, so it's still quite possible we could see Beijing retaliate by excluding foreign companies like First Solar and SunPower from receiving major orders in China. I suspect we'll probably see some bias towards the Chinese panel makers for these new Chinese projects, but that western companies should also be able to get some sizable orders.
Lastly, let's take a quick look at Canadian Solar, which has secured $139 million in financing from Germany's Deutsche Bank to build a project in Canada. (company announcement) Canadian Solar seems to be trumpeting the announcement as a sign that it can get financing for projects from real commercial banks and isn't dependent on Chinese state-owned banks that often lend for more political than commercial reasons. But in this case, the loan is just a short term one to pay for construction of a major new plant. Once it's built, the plant will be immediately sold to its longer term owner, meaning the risk to Deutsch Bank is relatively small. Still, it's encouraging to see that commercial lenders are still interested in this kind of project, which shows the sector still has some longer term potential as a viable business.
Bottom line: LDK's move toward a state-led takeover continues with its latest poor results, while foreign solar panel makers are likely to benefit from China's plans to build up its solar power sector.
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 .