Solar Day of Reckoning Nears

Doug Young

Despite China’s best efforts to avoid it, a much needed day of reckoning seems to be drawing nearer for the bloated global solar panel industry, which should include a major shake-up for Chinese firms that supply over half the world’s output. The latest signs of a looming judgment day are coming in news that US firm MiaSole has just agreed to be purchased by a Chinese buyer, and from Chinese giant LDK Solar (NYSE: LDK), which disclosed it has received a brief reprieve from its lenders for repayment of its rapidly souring debt.

Of course, the big wild card in this non-stop stream of solar news is Beijing and the local governments that strongly support the big field of Chinese solar panel makers, which are important contributors to regional economies even as they post massive losses. Over the weekend, Chinese media reported that many local governments are already coming to the rescue of rapidly failing solar panel makers in their jurisdictions, and that the Beijing-based policy lender China Development Bank was preparing a massive bailout package for a dozen of the nation’s biggest manufacturers, including former industry leader Suntech (NYSE: STP). (previous post)

Let’s have a look at the latest news, which contains all the major elements of a financial soap opera that has unfolded over the last following a massive overbuilding of solar panel factories in China that created a huge global supply glut. In the first of the news bits, MiaSole, once an investor darling that promised to revolutionize the industry with its cutting-edge technology, has been sold to privately held Chinese firm Hanergy Holding Group, according to a foreign media report citing unnamed sources.

What’s most interesting about MiaSole is the huge hopes once held for the company by private investors, including such big names as Silicon Valley venture firm Kleiner Perkins Caulfield & Byers. According to the reports, those investors pumped some $500 million into Miasole since 2006, and will now get back a scant $30 million, which is reportedly the price that Hanergy will pay for the company.

Investors were particularly bullish on MiaSole, which received new funding as recently as March of this year, because of its technology in an area called thin film, which is more flexible and less bulky than traditional solar panels. Now, one analyst estimates that investors in this former high-flyer will get back as little as 6 U.S. cents on the dollar that they put into the company.

Meantime back in China, LDK, the weakest of China’s major solar panel makers, appears to be in a race with Suntech to see who will become the first big Chinese player to lose its independence, most likely after being purchased by a big state-owned company. LDK has just announced that its lenders have temporarily agreed not to start seizing the company’s assets including more than half of LDK’s stock as a result of a recent series of credit defaults. (company announcement)

LDK obviously wants people to focus on the positive news that it has received a 1 year reprieve through September 2013 from its lenders, which are mostly big state-owned banks that take their orders from Beijing and other government organs. But from my perspective, the bigger news is that LDK is finally publicly admitting to “various prior defaults” on its loan and other credit repayments, which I suspect now amount to hundreds of millions of dollars in overdue payments.

Wall Street investors also seem to be focusing on this negative element of the story, with LDK shares dipping 2 percent to a new all-time low of $1.04 after the announcement came out. I would predict the stock will probably dip below the critical $1 mark within the next week or 2, triggering a de-listing notification as the company joins Suntech and JA Solar (Nasdaq: JASO) in the sub-$1 range. But at this point, de-listing is probably the least of the big concerns for LDK, Suntech and their peers, which are probably more focused on simple survival.

Bottom line: The fire sale of a former US solar technology high-flyer and loan defaults by LDK point to a looming day of reckoning for China’s solar panel makers, with a big sale likely by the end of the year.

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 .