Beijing Funds Solar Consolidation 中国政府或继续向光伏行业提供资金支持
A new announcement from solar panel maker Canadian Solar (Nasdaq: CSIQ) indicates that Beijing may be preparing to help fund a much-needed consolidation in the oversupplied sector. The news should be welcome by money-losing Chinese solar companies in general, as it indicates that Beijing will continue to provide them with funds to continue their operations as private sector options evaporate. But the move will inevitably raise new complaints from foreign rivals, who will say this funding is exactly the kind of unfair state support that has led to dumping investigations in both the US and European Union.
Let’s look at the latest news bit, which has Canadian Solar announcing it will receive a C$93 million loan from China Development Bank, a top state-run policy lender. (company announcement) Canadian Solar said that a big portion of the loan will help it fund its previously announced plan to form a joint venture with Canada’s SkyPower to build solar power plants. (previous post)
The relatively small size of the loan, roughly equal to the same amount of US dollars, is a bit surprising and probably reveals just how dire the situation is for Canadian Solar and its peers. The fact that the loan is so small would seem to reflect that Canadian Solar’s own cash position is so weak that it can’t fund this deal with its own internal cash reserves. What’s more, the fact that it is having to go to a state-run lender also probably indicates that global lenders and financial markets aren’t willing to give even small amounts of money to Chinese solar companies, most likely fearing that many may not survive to repay the money.
The collapsing financial situation of even the strongest Chinese solar companies has come sharply into focus these past few weeks as most grapple with losses that have ballooned over the last year due to a major supply glut. Two weeks ago industry pioneer Suntech (NYSE: STP) shocked investors with its disclosure that it may have been the victim of a $600 million fraud, sparking a sell-off in its already embattled shares. (previous post) With another $600 million worth of convertible bonds set to mature in March next year, investors are undoubtedly starting to worry that Suntech may have difficulty paying its bills for much longer.
Meantime, Trina Solar (NYSE: TSL) a couple of weeks ago pre-announced earnings that showed its second-quarter sales would come in 20 percent below an already weak forecast given previously, as the company wrote off $50 million in sales that it said it probably wouldn’t be able to collect. (previous post)
If I were a banker or bond buyer, I certainly wouldn’t want to fund any of these companies due to the very real possibility that many may never be able to repay their debts. That said, look for Beijing to step in and provide at least some short-term funding for its solar companies like it has for Canadian Solar, to keep them afloat for the next few months. If Beijing is smart, it will use this leverage to force some consolidation in the sector. Otherwise, the painful losses will simply continue into the future until even Beijing grows tired of funding these inefficient, money-losing companies.
Bottom line: Beijing’s new loan to Candian Solar indicates it will continue to provide new funding to keep its solar sector afloat as private sector lenders financial markets shun the industry.
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