LDK to again get financial aid from Chinese banks?

LDK Solar may get a $320 million loan from a consortium of Chinese banks, led by the China Development Bank (CDB). LDK Solar (LDK) has been running of fumes for most of the last year, as massive debt made the company post huge losses. The company has lost a huge amount of marketshare and its billion dollar poly plant remains shut, as it is not economically viable. Improvement in technology has made this plant obsolete and the company has not been generating profits. The company’s share were delisted from NYSE and the company sold equity stakes to Chinese state funds for a pittance, as it was desperate to raise cash to run operations.

Note Suntech (STP) has already become bankrupt, with most of its assets sold to Shunfeng. Bankruptcy in China remains a hazy process as state owned funds keep running even zombie companies to protect jobs. LDK Solar was the largest solar wafer producer and had diversified into all parts of the supply chain. But increasing competition from the like of GCL Poly eroded its competitive position and its huge pile of debt made operations almost impossible. $64 million of the loan will be used to resurrect the dead poly plant that LDK had built over the last 3-4 years. The plant never ran to even half of its capacity as price of poly went below $20/kg. LDK had no money to improve the equipment.

I think it is a bad move on the part of the banks to pour more money into a company that has already defaulted on $3 billion of debt. The company should be sold off to other more capable companies, which can make use of the capital equipment. There have been cases where Jinko Solar (JKS) and Trina Solar (TSL) have bought or joint ventured with the Tier 2 solar companies.