Doug Young

I wrote earlier this week about troublesome signs for the solar panel sector’s fledgling recovery after a revenue warning from Trina (NYSE: TSL), and now we’re seeing another worrisome signal with news that Yingli (NYSE: YGE) is launching a new fund to build solar power plants. This kind of scheme looks eerily similar to one that kicked off the downfall of former industry leader Suntech (NYSE: STPFQ), though there are also a few differences. Still, Yingli’s latest move signals that the industry may not have learned its lesson from the Suntech debacle.

Yingli’s decision to launch this new scheme also suggests that the hoped-for explosion of new solar plant construction in China isn’t coming as quickly as many had hoped, forcing panel makers to bridge the gap by helping to finance and build new projects. Most major players have used this kind of process before, building new plants using their own resources for eventual sale to long-term buyers.

But in most of those cases, probable buyers were already in place before plant construction began. This new plan by Yingli seems to depart from that model, and looks like it will involve the speculative construction of new solar plants first, and then identification of potential buyers later.

All that said, let’s look more closely at Yingli’s new scheme that has it teaming up with Chinese private equity firm Shanghai Sailing Capital to launch a renewable energy fund. (company announcement) The fund will initially have 1 billion yuan ($160 million) in capital, with Yingli holding a majority 51 percent and Sailing holding the remainder. Yingli will provide its roughly $80 million contribution in installments rather than immediately, reflecting the difficulty it faces in raising even this kind of modest amount of cash.

Not surprisingly, the fund will mostly build solar power plants in China using panels supplied by Yingli. If any industry watchers are getting a sense of deja vu after reading all this, it’s because the now-bankrupt Suntech did something quite similar back when it was still an industry leader.

In that instance, Suntech set up the Global Solar Fund (GSF), which became a major building of solar power plants, mostly in Italy. Like Yingli, Suntech was the controlling shareholder in GSF, and the fund used Suntech-supplied panels for most of its projects. That arrangement allowed Suntech to post billions of dollars in sales, even though others would later argue it was effectively selling its panels to itself.

Solar historians will know that Suntech ultimately had to publicly discuss its cozy relationship with GSF when the partnership soured over a financial issue. That disclosure, which came at the height of the solar sector’s recent downturn, set Suntech on a downward spiral that ultimately ended with its bankruptcy declaration last year and its current liquidation.

So, what, if anything, is different with this current Yingli scheme? From what I can see, the biggest difference is that the Yingli fund is far smaller than GSF, meaning its financial impact on Yingli’s sales could be much more limited. The other big difference is that Yingli’s fund is based in China, which has embarked on an aggressive plan to build new solar plants under a directive from Beijing.

That means that the new Yingli solar fund could find plenty of potential buyers for its plants in the form of state-run companies eager to help Beijing meet its ambitious solar plant construction goals. It’s probably still too early to get too worried about this new plan from Yingli, and we’ll have to see how it develops. But if I were an investor, I would certainly keep a watchful eye on this fund, which has the potential to create major headaches for the company down the road.

Bottom line: A new Yingli-invested fund to build solar power plants in China looks like a risky bet that could ultimately undermine the company if no buyers emerge for newly constructed plants.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post New Yingli Fund Evokes Shades Of Suntech appeared first on Alternative Energy Stocks.

Doug Young 

Sunset for Suntech. Photo by Tom Konrad

As the sun rapidly sets on former solar pioneer Suntech (OTC: STPFQ), I thought I’d take a look at the latest reports that show just how closely the company relied on state support. At the same time, another major development has seen Suntech’s shares finally de-list from New York, where they have traded since its 2005 IPO. The de-listing is something that should have happened long ago, even though investors continued to bet that Beijing would rescue Suntech ever since the company was forced into bankruptcy back in March.

I’m suddenly feeling a bit nostalgic while writing this, as I suspect it will be one of the last chances I have to write about Suntech before the company officially ceases to exist. But I also suspect we’ll probably see at least 1 or 2 more flare-ups before the curtain drops, providing an appropriate final burst for this former solar pioneer that later became a poster child for creative accounting that is relatively common among US-listed Chinese companies.

Let’s start with a look at a new report that shows just how closely Suntech was tied to state support. Such strong support was one of the main factors for the sector’s build-up over the last decade, which resulted in massive oversupply that sparked a downturn that began more than 2 years ago and is only finally starting to subside now. That downturn claimed numerous victims in the US and Europe, and Suntech is the biggest victim in China.

According to the latest report, Suntech’s 2 largest creditors were both big state-run lenders, which often make their decisions based on orders from the central and local governments and provide loans at rates well below market levels. The largest of Suntech’s creditors was China Development Bank, one of Beijing’s main policy lenders, which held about 2.4 billion yuan ($393 million) in Suntech debt, or about a quarter of the company’s total debt of 9.5 billion yuan. (English article) The second biggest creditor was the Bank of China’s (HKEx: 3988; Shanghai: 601988) branch in the city of Wuxi, Suntech’s hometown, with nearly 2 billion
yuan in debt.

Some quick math will show that these 2 banks alone account for nearly half of Suntech’s debt, though it’s unclear to me if the 9.5 billion yuan figure also includes the company’s international bonds. But regardless, the fact that 2 big state-owned banks lent $720 million to Suntech looks like strong evidence to support foreign competitors’ claims that Beijing provides unfair support to its solar panel makers. Those claims led to anti-dumping investigations by the US and EU, both of which found that China did indeed provide unfair support to its solar panel makers.

From there, let’s look quickly at the other major development, which saw Suntech’s shares officially moved to the over-the-counter market earlier this week from their former listing on the New York Stock Exchange. The NYSE officially cited uncertainty over Suntech’s ability to file its annual report on time for the de-listing. (English article) But I suspect that stock exchange officials also felt guilty for not pressing harder to de-list Suntech shares earlier, as most companies are usually instantly de-listed when they enter bankruptcy reorganization.

Investors continued to value Suntech at more than $100 million throughout the bankruptcy process, with its shares trading above the minimum required $1 level for most of that time. They finally began to sink last week after it became clear the company was being liquidated, though they suddenly rallied 40 percent in over-the-counter trade in the latest session. Personally speaking, I’ll be happy when the shares finally stop trading completely, formally ending Suntech’s life as a listed company.

Bottom line: The latest reports on Suntech’s debt highlight its strong government support, even as its New York-listed shares loom closer to becoming worthless.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post SunTech’s Sunset Illuminates State Ties appeared first on Alternative Energy Stocks.

Doug Young

Someone should write a book about solar panel superstar Suntech (NYSE: STP), whose the incredible rise and spectacular fall has taken yet another intriguing twist with word that some of its major assets have been seized by a court in Italy. The Italian angle is just the latest turn in this international story of a company founded by an Australian-educated Chinese engineer, which once look set to revolutionize the solar energy sector, only to be forced into bankruptcy when the sector plunged into a massive downturn. From a more practical perspective, I suspect this latest development will prolong Suntech’s bankruptcy reorganization, since its creditors may have been hoping to liquidate these Italian assets to repay some of the company’s massive debt.

The assets in question are all owned by Global Solar Fund (GSF), a company that was building solar plants in Europe, including Italy. In many ways, GSF has been one of Suntech’s biggest Achilles heels and continues to haunt the company with this latest development. The fund was set up by Suntech founder and former CEO Shi Zhengrong, who wanted to use the company to build and operate solar power plants in Europe using solar panels supplied by Suntech.

The only problem was that Shi declined to disclose the close financial relationship between his firm and GSF, even as Suntech sold millions of dollars worth of solar panels to GSF and recorded those sales as revenue. Such sales were technically legal, though many would later argue this kind of relationship was questionable because Suntech was basically selling its panels to a company it controlled. Suntech was finally forced to disclose the relationship last summer due to an issue involving a loan guarantee, kicking off a downward spiral that ultimately ended with its bankruptcy declaration in March.

Reports shortly after the bankruptcy declaration said that Suntech was looking to sell its stake in GSF to repay investors and recapitalize as part of its reorganization. (previous post) Those reports said GSF had an enterprise value of $800 million, though its real value was probably far less since many of its plants were built before the industry’s current downturn that has seen panel prices tumble by more than half over the last 2 years.

Suntech’s latest disclosure indicates that a sale of its GSF stake may be difficult or impossible in the near term, since many of GSF’s assets now remain in limbo following their seizure by Italy’s courts. (company announcement) According to the announcement, Italian courts have now seized some 37 solar plants owned by GSF, accounting for about one-fifth of GSF’s total power-generation capacity.

The reasons for seizure look largely unrelated to Suntech’s own woes, and are more due to local issues including improper authorizations and pollution. Still, the seizure of these assets is the last thing that Suntech needs as it tries to reorganize and emerge from bankruptcy. Creditors who were hoping to get any money from a GSF sale will now have to probably put those plans on hold, potentially for years, as GSF’s case plays out in the Italian courts.

Reports earlier this month indicated that Suntech was nearing the end of its bankruptcy reorganization, as it reached deals with its major bondholders and worked to find new investors for its major China-based assets. (previous post) I suspect the creditors were counting on at least some funds from a sale of GSF, perhaps hoping to get $200 million or more. This latest seizure of GSF assets could slow the reorganization process, meaning we may have to wait until next year to see Suntech finally emerge from bankruptcy.

Bottom line: The seizure of Suntech-controlled assets by an Italian court could set back its bankruptcy reorganization by several months.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post Italian Courts Seize GSF Solar Plants Complicating Suntech Bankruptcy appeared first on Alternative Energy Stocks.

Doug Young

Beijing took an important step towards rejuvenating the global solar panel sector last week when it announced new steps that will strictly limit new plant construction. This kind of government-led approach is a good short-term solution, as it will halt the introduction of new supply, which in turn will allow prices to stabilize after more than 2 years of steep declines caused by massive overcapacity.

But over the longer term, China needs to address the problem at its root by changing the mindset of state-owned enterprises that own many smaller plants which contributed to the current crisis. It can do that by teaching them to make their decisions based on commercial factors and not simply in blind response to government objectives.

The rapid build-up of China’s solar panel-making sector is a typical pattern seen in China during the reform era, when government objectives often lead to massive build-ups in areas targeted for growth. Previous cycles have seen the addition of massive new capacity in a wide range of sectors, ranging from steel to cars, televisions and microchips.

Such build-ups often end with big-scale closures due to major excess capacity, wreaking havoc on not only Chinese but also global markets and resulting in billions of dollars in lost investment.

The solar sector was one such typical case, taking off after Beijing provided incentives such as cheap loans and favorable tax policies. As a result, Chinese solar panel makers came to dominate the sector over the last 5 years, overtaking western rivals to currently control up to 80 percent of the world market.

At the height of the boom, China boasted some 400 companies engaged in various aspects of panel production, as the nation’s capacity rose 10-fold over the last 5 years, according to various estimates. That rapid build-up caused prices to plunge by more than half since the downturn began in 2011, including a 20 percent decline in the last year alone.

Many western firms became insolvent in the crisis, and former Chinese leader Suntech (NYSE: STP) joined the group earlier this year when it was forced into bankruptcy. While the big names have grabbed headlines, many more smaller firms have also left the market, with one executive estimating the number of Chinese players has now fallen to 150 from the former 400.

To set the sector on a longer-term track for sustainable growth, the Ministry of Industry and Information Technology (MIIT) late last week published rules that will halt any new construction based on current technologies. (English article) This kind of restriction would never be necessary in market-oriented countries, since no company would ever enter a field where the fundamentals were still quite weak.

But in China such commercial factors are often a secondary to politics, with state-owned enterprises often building new factories with little or no chance for success in response to government priorities and directives. Beijing should be commended for issuing its latest order, which will halt new factory construction and allow the sector to finally stabilize. But over the longer term, the central government needs to teach these state-owned enterprises to only join government programs when doing so makes commercial sense, and to leave political factors out of their decisions.

Bottom line: China’s ban on new solar panel plant construction is a good first step to rejuvinating the sector, and should be followed by a re-education campaign for state-run plant owners.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post China Boosts Solar With Construction Ban appeared first on Alternative Energy Stocks.

Doug Young

New developments have come rapidly over the past week at Suntech (NYSE: STP), leaving the former solar superstar on the brink of collapse as its founder Shi Zhengrong blocks a potential government rescue. Shi’s exit is believed to be a main condition for the government bailout, and his refusal to leave could well result in the failure of a company that is otherwise an industry leader with strong potential. To prevent such a collapse, the government should take the unusual step of forcing Shi to go so that Suntech can begin a desperately needed reorganization. Such interference should be used only rarely in a true market economy, but does make sense when it means saving important companies in crisis.

Suntech’s current woes are grounded in a 2-year-old crisis for solar panel makers, which are suffering from massive overcapacity due to a huge build-up over the last decade. Most companies are now deeply in the red, and their shares have also plummeted. Suntech’s shares have come under particular pressure and now trade at $0.70, a fraction of their nearly $50 price back in 2008.

Dr. Shi Zhengrong Suntech Founder, Chairman and CSO. Photo credit: Suntech

But Suntech’s woes go beyond the industry’s general malaise. The company came under fire last year when it disclosed a relationship that allowed it to book millions of dollars in revenue by selling panels to a company that it controlled. That relationship sparked a confidence crisis as investors feared Suntech may have engaged in other dubious business practices.

The crisis came to a head last week when more than $500 million worth of Suntech debt matured even though the company lacked cash to repay the money. Some 60 percent of Suntech’s bondholders agreed to a two-month extension of the deadline, but at least one said it would sue, further compounding Suntech’s woes. (English article) Meanwhile, media reported that Suntech could declare bankruptcy by March 20. While all this was happening, Shi was removed from his posts as CEO and chairman of the company. But he retains a place on Suntech’s board and continues to control the company through his 60 percent ownership of its stock.

Government entities in Beijing and Suntech’s hometown of Wuxi are reportedly ready to provide desperately needed funds to ensure the company’s survival, as part of a broader State-led rescue that would see the industry consolidated around about a dozen its the biggest players. Suntech would almost certainly be among those consolidators if it can reorganize without Shi’s interference.

But Shi has shown he has no intention of leaving, even if that means driving Suntech to ruin. To prevent that, Beijing and Wuxi should force Shi from the company, using their clout with government agencies and Suntech’s State-owned lenders to apply pressure through actions like withholding funds and revoking business licenses.

This kind of interference is rare in the West, but has occurred in times like the global financial crisis when governments stepped in to save companies like General Motors (NYSE: GM) and RBS (London: RBS). Without such intervention, Suntech’s downward spiral could easily continue to the point where the company fails, resulting in the loss of a major player with the potential to reorganize and regain its place as a global leader.

Bottom line: The government should move more aggressively to push Shi Zhengrong out of Suntech, or risk seeing the company fail.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post Bejing Should Oust Shi to Save Suntech appeared first on Alternative Energy Stocks.

Doug Young

I rarely write about the same company 3 times in a single week, but in this case the developments are coming so quickly at plunging solar panel pioneer Suntech Power (NYSE: STP) that an update to this fast developing story is necessary. Company watchers will know that Friday was the official deadline for Suntech to repay some $540 million in bonds that have just come due. The company has no cash to make that repayment, and earlier this week received a 2 month extension on that deadline from a majority of bondholders. (previous post) Meantime, Chinese media reported earlier this week that Suntech could declare bankruptcy sometime between March 15-20, which means such a move could come as soon as today if the reports are true. (English article)

Not surprisingly, all the talk has taken a toll on Suntech’s already-battered shares. Suntech stock has lost nearly half of its value this week, including a nearly 20 percent plunge on Thursday in New York that sent it to an all-time low. Shares were down by 50 percent at one point on Thursday from their previous close, as the company’s trading volume tripled from its usual levels.

The trading was so frantic that the New York Stock Exchange took the relatively unusual step of asking Suntech to issue a statement on what was happening. Not unexpectedly, Suntech said it was unaware of any undisclosed events that may have triggered the huge sell-off and surge in trading volume. (company statement) Suntech added that it had no plans to repay the bonds that were maturing on March 15, and added its previous disclosure that 60 percent of the bondholders had agreed to a 2 month extension.

So what’s happening here, and will Suntech in its current form live to see another week? I suspect the sell-off was a direct result of the bankruptcy rumors, combined with investors skittishness as the official March 15 deadline approached. Accordingly, many people who previously hoped to make some quick money on a company turnaround finally decided to dump their shares before Suntech’s stock became worthless, which is what usually happens with a bankruptcy reorganization.

As to the future, the next week will certainly be a pivotal one for Suntech but may not necessarily mark the end of the current saga. Suntech’s founder Shi Zhengrong has been forced from both the CEO and chairman’s job at his company, but still remains its controlling stakeholder with 60 percent of its stock.

I suspect the board and Suntech’s new top management are pushing for the bankruptcy, which is probably a conditions for a government-led rescue plan. Such a bankruptcy would also conveniently remove Shi completely from the picture by making all of his shares worthless.

It does seem like Shi’s control of the situation is weakening daily, and I honestly wouldn’t be surprised if the board manages to force a bankruptcy filing against his will. But Shi is also a very determined man, so I wouldn’t completely consider him defeated just yet. At the end of the day, I would put the chances for a bankruptcy filing by this time next week at around 60 percent.

Bottom line: Suntech’s day of reckoning could come in the next week, with the chances of a bankruptcy filing during that time at greater than 50 percent.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post Suntech Plunges as Reckoning Day Approaches appeared first on Alternative Energy Stocks.

Doug Young

With only a week before a key deadline for a big debt repayment, solar panel maker Suntech (NYSE: STP) appears to have cleared a major hurdle for a rescue plan by settling a big dispute with one of its major partners. I suspect that settlement with GSF, a builder of solar plants in Europe, was a major condition by Suntech’s bondholders for a deal that could see the company avoid both bankruptcy or a takeover by Chinese government entities. In the meantime, Suntech’s colorful founder Shi Zhengrong is speaking freely to the media about his forceful ouster earlier this week from the chairmanship of his company, in an ongoing series of power plays taking place behind the scene.

All this may sound quite complicated, but the story really comes down to a battle between Shi and Beijing. Shi desperately wants to remain at his loss-making, debt-laden company which has more than $500 million in bonds that will mature next Friday, March 15. Beijing is offering funds for a potential bailout, but only if Shi leaves the company.

In the latest development of this fast-developing saga, Suntech announced it has reached a settlement with GSF, an affiliated company that was buying Suntech’s panels to build solar electricity plants in Europe. (company announcement) The dispute with GSF began last year and is a bit complex, involving GSF’s failure to deliver millions of dollars worth of bonds that it had promised to give Suntech to use as collateral for a loan.

Terms of the settlement will see Suntech increase its stake in GSF to 88.15 percent from a previous 79.3 percent. But more important than the terms is the fact that Suntech has settled the matter, which was most likely a key condition for the renegotiation of Suntech’s $541 million in bonds that will mature in a week. If that’s the case, look for developments to come quickly in this deal, as Shi tries to reach a settlement with the bondholders that will allow him to stay at his company and avoid having to take a bailout from Beijing.

Such a deal would almost certainly force Shi to give most or all of the 60 percent of Suntech he currently owns to bondholders. That stake was worth billions of dollars just 2 years ago before the solar panel sector plunged into a major downturn due to a massive supply glut. But now the stake is worth just $132 million based on Suntech’s latest market capitalization, which includes a 4.3 percent rally for its shares after it announced the GSF settlement.

Meantime, let’s take a quick look at the latest media reports that show just how bitter and dirty the behind-the-scenes battle at Suntech has become as its reckoning day approaches. According to a report in the China Daily, Shi, who lost his CEO position last summer, said he was excluded from all meetings at the company over the past month before finally being kicked out of the chairman’s job earlier this week. (previous post)

Shi added that he was “shocked” by his ouster, and called the move unlawful. This latest settlement with GSF would seem to indicate that perhaps Shi still wields some influence in the company, and that he may be able to craft a rescue plan that would avoid a government takeover. But even if he avoids a government bailout, Shi will most likely have to give most of his Suntech shares to bondholders, who will almost certainly also insist that he step aside and let more experienced executives come in to turn the company around.

Bottom line: Suntech’s settlement of a dispute with a business partner could pave the way for renegotiation of a major bond that will mature next week.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post Suntech: Shinier Days Ahead? appeared first on Alternative Energy Stocks.

Doug Young

New developments in the battered solar energy space indicate the day of reckoning is fast approaching for embattled Suntech (NYSE: STP), even as the latest results from rival Yingli (NYSE: YGE) are showing early signs of a rebound for the battered sector. Industry watchers will recall that cash-strapped Suntech has nearly $600 million worth of bonds that will mature on March 15, even though it lacks the money to repay the bondholders.

The company hired investment bank UBS in October to try and renegotiate the debt, though we haven’t heard anything from the company since then. (previous post) Just 2 months before that, Suntech founder Shi Zhengrong resigned as the company’s CEO but retained his title as chairman. (previous post)

Now Suntech has formally announced that Shi has also resigned his position as chairman, with US high-tech industry veteran Susan Wang set to take over that position. (company announcement) The announcement adds that Shi will retain his position on the company’s board. But for anyone who likes to read between the lines, this move looks like the prelude to Shi’s compete removal from the company that he founded, and I wouldn’t be surprised to see him quietly leave the board altogether when the next elections are held.

Chinese media previously reported that Shi’s removal from the company was one of the main conditions from Beijing as part of a broader government-led rescue package. With the $575 million in Suntech bonds coming due in less than 2 weeks, it now looks like Shi has been unable to reach a deal by himself with the company’s creditors. I suspect Shi couldn’t offer those bondholders very much, perhaps 20 cents or less for each dollar, and that many of those creditors think they will get a better deal if they wait for a government-led rescue package.

Against that backdrop, Shi’s exit from the chairman’s position looks like one of the final steps before the company announces a state-led bail-out that will likely see Beijing and other government entities inject more than $1 billion into the company in exchange for a major stake. Perhaps sensing an upcoming dilution of their shares, investors bid down Suntech’s stock by 3 percent in Monday trade after the announcement came out.

Meantime, we should also take a quick look at the latest earnings report from Yingli, which pre-announced much of the report’s highlights last week. (earnings announcement; previous post) The main addition in the final report was Yingli’s actual profit situation, which looked relatively encouraging. The company’s net loss for the fourth quarter came in at $200 million, a marked improvement from the year-ago net loss of about $600 million. But the latest loss was also slightly larger than Yingli’s third-quarter loss, as it took a $19 million write-down for unsold inventory.

Shipments grew by an encouraging 40 percent for the quarter, while revenue was up by a smaller 30 percent, reflecting continued pressure on prices. In another piece of upbeat news, the company said it expects 2013 shipments to continue growing at about a 40 percent rate, as the sector rebounds and the company gains market share at the expense of smaller, less efficient players. Yingli shares were unchanged after the results came out, most likely due to the mixed nature of its report and the fact that it pre-announced many of the figures last week.

Bottom line: Suntech is likely to announce a major new rescue plan from Beijing in the next 2 weeks, while Yingli’s latest results point to accelerating consolidation in the solar panel sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

The post Suntech Nears Final Reckoning; Yingli’s Sales Grow While Losses Narrow appeared first on Alternative Energy Stocks.

Doug Young

A couple of new items from the battered solar sector hint that the situation may be improving for the largest companies, even as smaller players continue to struggle and face the very real danger of collapse. Of course I’d be remiss if I didn’t point out that I’ve predicted a rebound for this embattled sector once or twice before based on optimistic company statements, and in each instance the rebound I was sensing never came. This time the difference could be that many smaller players have now closed or are tottering on the brink of insolvency, meaning they are losing share to the larger, relatively healthier players with more resources.

That situation is reflected in the latest news from Yingli Green Energy (NYSE: YGE), one of the sector’s largest and relatively healthy players, which has just announced some preliminary fourth-quarter forecasts that look quite encouraging. (company announcement) Meantime, the smaller, China-listed Chaori Solar (Shenzhen: 002506) sent out the industry’s latest warning signal, with word it may miss an upcoming bond payment. (English article)

Let’s start with Yingli, as it’s one of China’s stronger solar panel makers and was actually earning a profit as recently as the second quarter of last year, even as most other players lost money for most or all of 2012 amid a prolonged global downturn. Yingli’s preliminary announcement appears to show the company’s sliding fortunes may have reached bottom in the third quarter of 2012, as both its sales and margins rebounded strongly in the fourth quarter.

Yingli said its fourth-quarter shipments rose 40 percent from the third quarter, well ahead of its previous guidance for a low teen percentage increase. The 40 percent rise was also much better than the previous 2 quarters, including a third quarter drop of 16.9 percent and a second quarter that saw shipments rise 13.7 percent.

At the same time, Yingli also reported its fourth-quarter gross margins would come in between -8 percent and -8.5 percent, partly due to one-time charges related to excess inventory and idle capacity. While it’s never good to have negative margins, the fourth-quarter forecast was still a notable improvement from the -22.7 percent gross margin for the third quarter.

The company didn’t comment on its profit situation, but it does appear that it will report another loss for the fourth quarter due to the one-time charges. If that’s the case and sales and margins continue to rebound, we could see Yingli emerge as one of the first solar companies to return to profitability in the current quarter.

Shareholders seemed generally encouraged by the preliminary results announcement, bidding up Yingli shares by 2.3 percent after the news came out. A broader rally has seen Yingli’s shares more than double from their lows in late November and early December, as investors bet that sunnier days are ahead for the sector as Beijing prepares a broader bailout plan that is likely to benefit the biggest companies like Yingli.

Meantime, the end of last week saw some mixed signals coming from Chaori, which said it might not be able to make a bond interest payment due on March 7 due to a cash shortage. But then a day later a top company executive said Chaori wouldn’t miss the interest payment after all, thanks to intervention by the local government. (English article) This kind of intervention has become relatively common as local governments try to prevent companies from failing, though this is one of the first times a government has intervened to help a company with its bond payments.

Industry watchers will recall that former sector leader Suntech (NYSE: STP) also faces a much bigger bond-related headache in March, when nearly $600 million worth of its bonds will come due for repayment. Suntech hired UBS in October to help it renegotiate the debt with holders of the bonds, but we haven’t heard any results yet of the negotiations. (previous post) At the end of the day I do expect we’ll see Suntech reach a deal with the bondholders, though if it doesn’t the government could also still come to Suntech’s rescue the way it did with Chaori.

Bottom line: Yingli’s preliminary fourth quarter results show the company may return to profitability in the current quarter, while smaller solar players like Chaori will continue to face a cash shortage.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

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Doug Young

The woes at fast-fading former solar superstar Suntech Power (NYSE: STP) keep on coming, with the company releasing its latest earnings report that shows its woes are likely to continue until its increasingly inevitable takeover by the state. That takeover, if and when it comes, is likely to be as filled with fireworks as Suntech’s actual decline, with all signs indicating that founder Shi Zhengrong won’t easily yield control of his company to the government-backed funding sources he needs to provide it with desperately needed new capital.

Before we delve too deeply into that part of the story, let’s step back and take a look at the actual preliminary results that show the company’s business continues to decline as it grapples with a massive global supply glut for solar panels. (results announcement)

Other media are focusing on a part of the announcement that says Suntech will have to restate its results for 2010, as the company adds a provision for that year related to a fraud case it recently discovered involving one of its associated affiliates. That case itself is a bit complicated, but the bottom line is that Suntech thought it had received bonds from the associated affiliate and was using those bonds to guarantee a $600 million loan. It later discovered it never received those bonds, and now is having to use its own funds to guarantee the loan.

In my view, this restatement almost looks like the only bit of “good news” in the report, since everyone already knew about this problem and the final $60-$80 million figure in funds that Suntech will need to guarantee the loan isn’t too large and will be recorded in the past.

The much worse news comes in the present, with Suntech reporting that its situation continued to deteriorate in the third quarter with no signs of relief in sight. That’s important, because it could mean the company’s few remaining customers are starting to abandon Suntech and perhaps going to its rivals, amid growing signs that Suntech’s operations could be severely disrupted in an upcoming restructuring that will likely involve an ugly battle for control of the company.

According to its preliminary results announcement, Suntech’s revenue for the third quarter will come in around $387 million, about half of the $743 million in reported a year earlier. It added it expects the weakness to continue into at least the first part of next year, which looks slightly more pessimistic than some rivals that have given signs that their business could start to stabilize following the sectors prolonged downturn.

Equally important, Suntech said it is still working to resolve its debt problems, a reference to the fact that nearly $600 million of its bonds will come due in March next year and it has no way to repay the funds. One of my sources previously told me that Shi would like to find a way to repay the bonds using a solution that doesn’t require a bail-out from Beijing. But that kind of solution looks increasingly difficult, as bond holders are unlikely to make the kinds of concessions that Suntech would need to repay the debt without government help.

Progress in these negotiations will be the key factor to watch in the next 2 months, as it will determine whether Suntech remains an independent company or gets taken over by the government. I suspect a government takeover will be the ultimate result, as both debt holders and especially Beijing are increasingly losing their patience with Shi and would like to see him leave the company. That would pave the way for a fresh new management team to come in and try to turn around this former solar superstar.

Bottom line: Suntech’s latest results indicate the company’s deteriorating situation will continue into next year, making a government takeover likely as it struggles to repay its big debt.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

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