Bloomberg News

LDK Solar ‘Fantasy Land’ Forecast Belies Debt, U.S. Duty

May 30, 2012

LDK Solar Co. (LDK:US), the world’s second- largest maker of solar wafers, lost 38 percent of its market value in four trading days as analysts cut estimates today and questioned whether its balance sheet can withstand a global oversupply and threats from U.S. tariffs.

The company’s American depositary receipts closed at $1.88 in New York, down from $3.05 on May 23 and a 55 percent drop for the year.

Chinese solar companies have slumped since the U.S. Commerce Department announced May 17 duties on solar cells imported from the country. LDK’s 35 percent slide since then was the worst among the 17-member Bloomberg Global Large Solar Energy index, and Aaron Chew, an analyst with Maxim Group LLC in New York, said high debt and slowing sales are a concern.

Investors “have for the most part identified LDK as the one solar company with the most precarious balance sheet and most liquidity issues,” Chew said today in a telephone interview. “LDK’s solvency issues are coming to the forefront, and that’s just killing the stock. You have people rushing for the exits.”

The company reported (LDK:US) net debt of $2.9 billion in the fourth quarter. Sales were $420.2 million and LDK forecast sales would fall to $190 million to $230 million in the first quarter.

LDK announced April 30 plans to fire more than 5,500 workers and its net loss of $588.7 million in the fourth quarter was its third straight quarterly loss and more than five times analysts’ estimates of $109.7 million.

“The money LDK owes isn’t to the government, it’s to publicly traded Chinese banks,” Chew said. “They totally expect to get their money back. They’re not just going to eat $3 billion.”

China’s Steve Jobs

Peng Xiaofeng, LDK’s chief executive officer, has said he’s confident he can turn the company around. “It’s just like Steve Jobs 10 years ago,” Peng said in a May 28 interview with Southern Weekend, a Chinese newspaper. “Everyone thought he wasn’t much, but times change and in the end the true value was eventually reflected.”

Jobs used innovative products to transform a struggling Apple Inc. (AAPL:US) into the world’s most valuable company. Peng may need to do more than that, Chew said.

“There’s a lot of chatter within China that LDK is about to go under,” Chew said. “Not even the Steve Jobs of China may be able to save it.”

Chinese solar companies including Suntech Power Holdings Co. and JinkoSolar Holding Co. have said they plan to shift manufacturing to other countries and won’t be significantly affected by the U.S. tariffs.

LDK may be affected more than its competitors. Peng told China’s Xinhua News Agency May 25 that the tariffs will be “a challenge for us.”

Anti-Dumping Duties

The Commerce Department announced preliminary anti-dumping tariffs of 31.18 percent on LDK’s products. The agency will make a final decision in October on the tariffs, which range from 31.14 percent to 250 percent for different Chinese companies.

Shipments of Chinese solar panels to North America may fall 75 percent because of the duties, the El Segundo, California- based consulting company IHS Inc. predicted yesterday.

Two investment banks reduced their price targets for LDK today. Nitin Kumar, a Singapore-based analyst for Nomura Holdings Inc., expects the ADRs to fall to $1.30 from an earlier prediction of $2.50, and Ricky Ng, of Mirae Asset Securities Co. in Hong Kong, lowered the target to $1.90 from $2.10. Each ADR is worth one ordinary share.

LDK and other Chinese companies have expanded production capacity, creating an oversupply that pushed down prices for solar panels 49 percent in the past year.

‘Fantasy Land’ Guidance

The company’s “focus on scale to the exclusion of all else” isn’t working, Hari Chandra Polavarapu, an analyst at Auriga USA LLC in New York, wrote in a May 1 note to investors. LDK’s “guidance still resides in fantasy land” and its “debt morass” is dragging down earnings.

“The company is representative of all that is wrong with the Chinese solar PV manufacturing base, which serves as a large-scale employment welfare scheme subsidized and fully underwritten by the government,” Polavarapu said in an e-mail today.

E-mails to LDK and a public relations firm that represents the company weren’t returned today.

To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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