Bond Default by Chaori Solar, China
We have heard of numerous Chinese Government bailouts, in case of defaults by the Chinese Solar companies. However, there is news of the first ever country’s bond default by another Chinese Solar company, Chaori Solar. The Chinese Government has intervened once again asking Chaori Solar’s bank for deferment of their claims on the loan. The amount is expected to be approximately USD 61 million. The company has now agreed to make the interest payment in time. Constant intervention by the Chinese local governments are not allowing the bankrupt solar companies to go belly up. They keep giving loans and grants to the companies despite their condition which is a point of no return.
The government of Shanghai’s Fengxian district persuaded Shanghai Chaori Solar Energy Science and Technology Co.’s banks to defer claims for overdue loans worth 380 million yuan ($61 million), the company’s chairman, Ni Kailu, told creditors at a meeting on Wednesday.
Ni said that the deferral period of three to six months will enable the company to use its own cash to make a 90 million yuan interest payment due on March 11.
Read Chaori Solar Panel Reviews on GWI.
The solar industry pain has been prolonged as insolvent solar companies like LDK, Suntech are kept propped up by the Chinese Government and its banks.
LDK is the most famous Chinese solar bailout case as it is the most indebted solar company in the world. LDK has been making massive losses over the last couple of years, with no hope in hell of servicing its more than $3 billion in debt. There is no pretense of free market competition with the Xinyu local Government paying back an installment of LDK’s loans. The company has already got sweetheart loans and grants from Chinese state owned banks and the Xinyu Government. But it is like pouring money down a drain given the massively oversupplied solar industry. LDK is selling itself piecemeal to stay alive as it sold 19.9% stake for a pittance. Recently the top management and board of directors were also radically changed as the local government is quietly taking over the company. However it is extremely doubtful whether LDK can ever be turned around successfully. The reason is that the cost structure is quite high and it has a colossal amount of debt.
The bailout is the first from a Chinese local government to a non-state solar company to pay off debt. The solar industry is grappling with a global supply glut that’s curbed prices and trimmed profit margins, hurting the ability of developers to pay off borrowings. LDK’s long-term unsecured loans from the Huarong Trust totaled $79.4 million at the end of 2011, LDK said May 15.
Suntech was a similar story too. Suntech’s management is the worst amongst the Chinese solar companies, given the number of mistakes it has made despite the initial mover advantage, plus the strong support from the Chinese Government it enjoys. The company has so much debt and its business model, is in such a dire shape that only a Government bailout can keep the company alive. Like LDK Solar, Suntech also depends on the benevolence of the Chinese Government and its banks.
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