LDK Solar Ltd. (LDK)’s failure to fully pay notes this week has raised the prospect of China’s second solar-industry failure this year as the company needs to repay a loan 10 times larger by June.
The world’s second-biggest maker of wafers that convert sunlight into power couldn’t repay all of the $23.8 million of dollar-denominated convertible bonds that matured on April 15, according to a company statement yesterday. Before the delinquency, its 2014 yuan notes dropped below 50 yuan per 100 yuan face value, according to data compiled by Bloomberg. The yield reached a six-month high of 125 percent last week, compared with the 79 percent for Bonn-based Solarworld AG. (SWV) LDK, which will probably report a second year of losses tomorrow, must repay a $240 million loan unless it spins off its polysilicon unit by June 3, according to regulatory filings. Suntech Power Holdings Co. (STP), once the world’s largest panel maker, was dragged into insolvency days after it defaulted on a $541 million bond repayment on March 15. LDK failed to repay about $7 million of bonds for which it could not reach a settlement, and may receive a notice of default, said Edward Guinness, a fund manager at Guinness Atkinson Funds in London who oversees about $800 million, including a “tiny” position in LDK. “It’s out of LDK’s hands,” he said in an interview yesterday. “The lenders can choose to give them an extension. It’s up to them to push LDK into bankruptcy.” LDK wasn’t expected to miss the bond payment, said Amit Jain, a Bangalore-based analyst at SJS Markets Ltd.
“Everyone knows that cash flows are stressed but there was a feeling that the company would be able to manage this one,” he said. LDK’s Position LDK officials in San Francisco and at its headquarters in Xinyu, China, couldn’t be reached for comment. Chief Financial Officer Jack Lai wasn’t available, and phone calls and e-mails to his office went unreturned. Two calls and an e-mail seeking comments from Li Longji, a company spokesman in Xinyu, weren’t answered. LDK, which had net debt of $3.13 billion at the end of September, was unable to fully pay the bonds due April 15 because of “a temporary cash-flow shortage,” according to the statement. The company has reached a settlement with two convertible notes holders on the partial payment of a principal amount of $16.55 million to postpone the repayment of remaining debt. The manufacturer is “ready and willing” to discuss settlement for the remaining notes, it said. Flush with credit from state lenders, Chinese solar companies more than tripled production between 2008 and 2011. That helped drive a 17 percent decline in the cost of panels in the past year as demand slowed, according to data compiled by Bloomberg. Solar Glut Mounting losses are making it harder for China’s five- biggest solar makers to repay more than $1.7 billion in outstanding bonds. At LDK, the loss for 2012 may reach $669 million, according to estimates from China International Capital Corp., the country’s biggest investment bank. That would be more than the loss of $655.5 million in net income available to common shareholders in 2011, according to data compiled by Bloomberg.
LDK received its $240 million loan in June 2011 in the form of convertible preferred shares, according to a May 15 filing to the U.S. Securities and Exchange Commission. China Development Bank Corp., China Construction Bank Corp. (939), Bank of China Ltd. and their affiliates bought the shares, which are convertible into a stake of LDK Silicon & Chemical Technology Co., a unit that makes polysilicon, the raw material used in most solar panels.
