Bloomberg News

Solar CFOs Locked Out of Market by Suntech Default: China Credit

April 02, 2013

Chief financial officers of China’s biggest solar equipment makers say they have been locked out of the bond market by Suntech Power Holding Co. (STP:US)’s default on $541 million of convertible notes.

Yingli Green Energy Holding Co. (YGE:US) CFO Bryan Li, Trina Solar Ltd. (TSL:US) CFO Terry Wang and JA Solar Holdings Co. (JASO:US) Chief Operating Officer Xie Jian said in separate interviews they expect credit will be difficult to obtain and they have no plans to sell debt. JinkoSolar Holding Co.’s sale of 800 million yuan ($129 million) of bonds due January 2019 earlier this year is the only industry issuance in the last ten months, compared with two sales in the first half of 2012 raising 2.5 billion yuan and six during 2011 raising 6.2 billion yuan, according to data from Bloomberg New Energy Finance.

“Obtaining credit facilities will be harder as everyone thinks more carefully,” Yingli’s Li said in a March 28 telephone interview. “Expansion will slow down in the industry to ease oversupply. It will also spur industry consolidation, so it’s a good thing in the long run.”

Suntech’s March 15 default came after Premier Li Keqiang said the government will reduce its role in the economy and highlights risks in an industry where panel prices tumbled 57 percent in the past two years. The three executives need to service a combined $4.8 billion of debt, after losses widened to $740 million last year. They face losing access to debt capital markets as onshore corporate bond sales in China surged 60 percent in the first quarter versus the previous corresponding period and dollar issuance rose 67 percent. Global company note offerings fell 8.6 percent.

‘More Strict’

“Selling solar debt will be difficult at home because the market will avoid it and the regulatory authorities will be more strict when approving new sales,” said Qin Shengyao, a Shenzhen-based bond analyst at China Investment Securities Co., a unit of State Council-controlled Central Huijing Investment Ltd. “Issuance costs will rise and it will also be harder to borrow from banks.”

Suntech’s woes follow bankruptcies worldwide of solar manufacturers including Fremont, California-based Solyndra LLC, which shut operations and fired most of its 1,100 workers in August 2011. Solarworld AG (SWV), Germany’s biggest solar-panel maker, postponed the release of its 2012 earnings last month as it continues talks with creditors over its debt structure.

Government Support

In China, LDK Solar Co. (LDK:US) sold a 19.9 percent stake in November to a company part-owned by the government of Xinyu, the city where it’s based, in exchange for financial support. Shanghai Chaori Solar Energy Science & Technology Co. (002506) warned Feb. 22 it may not be able to pay interest on outstanding bonds due March 7 before announcing March 3 that the payment would be made.

A month before its bonds matured, Suntech was in talks with the government of Wuxi, the city where it’s based, about the possibility of financial support, Shi Dinghuan, president of the Chinese Renewable Energy Society and an adviser to the State Council, said at the time. Without support, the company defaulted and then said March 20 that eight Chinese banks were seeking a restructuring of its main solar manufacturing unit under a court insolvency process.

“Suntech’s default is a warning” to creditors, Trina’s Wang said by telephone last week. Trina has about $800 million of cash, enough to pay the $88.6 million of outstanding convertible notes due July 15, Wang said.

Supply Glut

A supply glut of solar panels led to a 21 percent price plunge in the 12-months through March 18, according to Bloomberg New Energy Finance. The average cost of solar cells, which are used in making panels, has fallen 23 percent while the price of polysilicon, the raw material used to make the cells, has declined 34 percent.

Suntech more than doubled its annual capacity to 2,400 megawatts in 2011 from 2009, according to data compiled by Bloomberg. Yingli tripled its capacity to 1,700 megawatts during that same period. Companies in the solar industry need to learn to maintain sustainable and stable operations instead of pursuing increases in shipments, JA Solar’s Xie said in a March 21 interview.

The announcement of Suntech’s default and the actions taken by the Chinese banks will “make financing for solar companies more difficult,” Xie said. “Even if solar companies can get financing, their costs will be higher.”

China’s benchmark 10-year government bond yield climbed to 3.53 percent yesterday from as low as 3.24 percent on July 11. Top-rated corporate debt with similar maturities pays 5.18 percent, down 11 basis points this year.

Default Swaps

The cost to insure China’s debt against non-payment for five years climbed has 9 basis points so far this year to 75.315 basis points yesterday in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The yuan advanced 0.1 percent today to 6.2016 per dollar as of 9:49 a.m. in Shanghai. It touched 6.2004 earlier, the strongest level since the government unified official and market exchange rates at the end of 1993.

JA Solar’s convertible bonds due May fell to 95 cents on the dollar after Suntech said banks had filed for restructuring of its unit before rising to 99.249 cents on March 28. Xie said the company had prepared the money needed to pay the debt and that its bonds had no default risk.

The yield on Yingli’s May 2015 domestic yuan bonds rose to as high as 7.44 percent on March 19 after Suntech’s default before falling to 5.841 percent on March 29. That compares with the 4.246 percent average yield for an index of AAA-rated corporate debt of similar-maturity tracked by Chinabond.

“It wouldn’t be easy for solar manufacturers to get financing even without Suntech’s default,” said Wang Xiaoting, a Beijing-based analyst for Bloomberg New Energy Finance. “Suntech’s case affirms that local governments won’t extend debt maturities and provide capital with no bottom line.”

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at fshen11@bloomberg.net

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


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