The Chinese Billionaire faces bankruptcy

Xiaofeng Peng used to be one of the richest Chinese billionaires in 2008, when his company LDK Solar (LDK) went into an unprecedented expansion spree. The company which concentrated on making solar wafers made grandiose plans to build a huge polysilicon plant. The company took on massive amounts of debt to build this plant. However, the poly plant never really worked out for the company. Not only did the plant face massive delays, but also never produced poly at low enough costs. By the time the plant was running, the technology was obsolete and the company had taken up billions of dollars in debt. The solar industry also went into its deepest cyclical downturn, which meant that LDK’s bread and butter wafer business was also losing money besides the high interest payments.

LDK like Suntech (STP) also tried to do too many things at the same time. The company also built up large solar cell and module capacities and bought European and USA solar installers. The company’s execution remained pathetic, even as the company kept on expanding. There was no way that LDK could have succeeded. The company made the right plans, but its poly plant was too big a failure for the company. GCL Poly which came into the scene later was much more successful. GCL Poly is now the biggest solar wafer company in the world and is also one of the top 5 poly producers with one of the lowest costs in the industry. GCL Poly executed much better, while LDK Solar kept on missing targets.

Xiaofeng is now being sued by one of the Chinese state owned banks, as he had provided personal guarantees for a large loan for expanding his polysilicon subsidiary. LDK Solar is a zombie plant and is running at very low capacities. The company has not released its 2013 results and is under liquidation. Some state owned funds have infused money to keep the plants running.