NEW ENERGY: Government Bails Out Yingli, Sort Of …

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Bottom line: YIngli’s sudden repayment of 70 percent of a maturing bond shows the government may provide partial assistance for struggling solar panel makers, in an effort to engineer an orderly shut-down of these weaker companies.

Yingli makes surprise debt repayment

The story of China’s troubled solar panel sector has taken an unexpected twist, with word of a last-minute partial reprieve for Yingli (NYSE: YGE), one of the weakest major players that looked set to default on a large debt payment. The development came quite quickly and had a few unusual elements that hint strongly at government intervention.

Yingli’s case is important because it will show to what extent Beijing and local governments may come to the rescue of ailing companies from the solar panel sector. Earlier signals had indicated Beijing was prepared to let weaker companies fail or get acquired, providing a second round of much-needed consolidation for a sector plagued by overcapacity. But this latest sign shows Beijing and especially local governments may be losing some of that resolve as China’s economy slows.
The latest news comes directly from Yingli, which announced it repaid most of the $157 million in debt and interest on some 5-year notes that came due on October 13. (company announcement) The announcement comes just a week after YIngli said it was likely to miss the deadline. (previous post) In that earlier announcement, Yingli said it was in the process of selling some idle land that could help it to raise up to $138 million, or enough to repay much of the debt.

Now it appears the company was able to raise the new money more quickly than it expected, which allowed it to pay off $110 million worth of the 5-year notes and associated interest, amounting to about 70 percent of the maturing debt. YIngli said it continues to work with holders of the remaining 30 percent of the debt, and expects to pay off that amount within the next year.

Yingli’s shares have rallied sharply since the end of September, nearly doubling in value from their low of 33 cents at the end of the month to their latest close of 58 cents. Of course the stock is still well below the $1 mark, after falling below that level in July, and the company has been notified it must return to the $1 level or risk de-listing.

Many of the stock’s movements these days are tracking investors’ belief over whether YIngli will survive at all, as it’s clearly the weakest of China’s remaining major solar panel makers. The company warned earlier this year that its ability to remain in business was in jeopardy, sparking concerns about insolvency. But it later said that investors had misinterpreted its words.

Limited Government Support

So, what does this latest twist in the Yingli story mean for the company itself, and also for the broader sector? In this case, the local government in YIngli’s industrial hometown of Baoding almost certainly came to the rescue by buying up land that it probably previously gave to the company for little or no cost. The fact that the money came so quickly means Baoding doesn’t want to see Yingli suddenly fail, which would potentially put thousands of people out of work.

But the fact that YIngli could only repay 70 percent of its debt also seems to send a signal that the government won’t bail out these companies completely. Yingli says it still intends to pay off the remaining 30 percent of its debt, but it may have difficulty doing that without more government assistance. And in this case the government may tell Yingli that it needs to sort out the remainder of this particular debt repayment by itself.

At the end of the day, this latest signal is decidedly mixed and appears to show Beijing isn’t prepared to let struggling companies like YIngli and ReneSola (NYSE: SOL) fail completely. Instead, it may be looking for a more orderly wind-down of their business, which could see them gradually sell down assets and lose customers until their sales dwindle and there’s nothing left of the original company but a shell.

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