Yingli Can Make Debt Payment, But It’s Still Weak

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Doug Young

Bottom line: Yingli appears to be in financial distress but will avoid defaulting on debt obligations coming due next week, while China’s broader solar panel sector is likely to face new anti-dumping tariffs in Europe later this year.

The solar panel sector has become quite a turbulent place these days, riding high one day on reports of major new plant construction, only to stumble the next on signs of conflict and financial distress. This kind of conflicting news reflects the fact that the industry is still in the midst of a major overhaul that could ultimately see a few more companies get closed down or purchased, leaving a smaller field of the biggest, best-run players to survive over the longer term.

The latest signs of distress are coming from Yingli Green Energy (NYSE: YGE), one of China’s largest players, which has just announced it has the necessary funds to pay off a bond that will mature next week. Some may see such an announcement as a sign of strength; but the fact that Yingli is taking the unusual step of making an announcement seems aimed at allaying market concerns that it might not make the payment. The other big distress sign is coming from reports that indicate Europe could soon re-launch an anti-dumping probe into Chinese solar panels, following complaints that the Chinese are violating an earlier agreement designed to avoid punitive import tariffs.

The field of remaining Chinese solar panel makers is rapidly dividing into 2 camps, one including names like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL), which are generally healthier and better run and thus more likely to emerge as future sector leaders. On the other side of the aisle are shakier companies like Yingli and ReneSola (NYSE: SOL), whose shares have both fallen into the $1 range amid concerns about their longer term prospects.

Yingli was almost certainly looking to allay some of those concerns with its new announcement that it has enough money to pay off 1.2 billion yuan ($200 million) in medium-term notes that will come due next week. (company announcement) Yingli added it has given the necessary funds to a third party as trustee, ensuring that the payment will be made on time.

Yingli’s move comes just a week after Tianwei, another solar products maker that is also from Yingli’s hometown of Baoding in northeast Hebei province, made an unprecedented default on an interest payment for a domestic bond. (English article) Last week, Yingli also announced that it sold some of its idle land in Baoding for 588 million yuan (company announcement), and I strongly suspect some or all of that money is now being used to pay off the bond that comes due next week.

Yingli’s stock was down 0.5 percent after its latest announcement this week, and now trades near a 52-week low that’s not much higher than the all-time lows it posted at the height of a major sector downturn 3 years ago. The company appears to have dodged a bullet for now, but its condition certainly doesn’t look that encouraging over the medium to longer term.

We’ll close out this post with a look at the bigger news that Germany’s Solarworld (SRWRF) has filed a formal request for a probe into Chinese panel makers, saying they are violating an earlier agreement aimed at ending a dispute over allegations of unfair state support. The 2 sides signed their landmark agreement in late 2013, with the Chinese panel makers agreeing to voluntarily raise prices in exchange for avoiding formal punitive tariffs.

Media first reported last month that many of the Chinese companies were violating the agreement by using a range of ways to negate their own price hikes (previous post), and Solarworld’s formal complaint means another formal probe is likely to follow soon. (English article) Solarworld is quite a powerful company, and was one of the main driving forces behind probes that ultimately saw the Chinese companies slapped with punitive tariffs in the US and face similar previous action in Europe. Accordingly, this latest complaint looks likely to launch a similar process that could ultimately see the Chinese manufacturers slapped with new punitive tariffs in Europe later this year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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