Thursday, April 18, 2013

Now LDK Solar Defaults

On the heels of Suntech's bankruptcy last month, LDK Solar Company Ltd. (Xinyu City, China) failed to make  full payments of $23.8 million-worth of 4.75% convertible notes due this year.

LDK was able to reach a private agreement on some cash payments and payment postponement with two other holders of $16.6M in notes. The company is seeking settlement with owners of the balance of convertible notes.

LDK just released fourth quarter 2012 results showing a 54% year-over-year collapse to $136M, an operating loss of $409M with a net loss of $515M. Obviously, it was a bad quarter but one of seven recent quarters with heavy losses. PV cells and panels along with silicon wafers saw drops in sales. Still, LDK's CEO Xinghue Tong is confident financial obligations can be met.

"Our business continued to be affected by the significant challenges that remained pervasive throughout the solar industry," Tong said in a statement this week. "Our fourth quarter results reflect the industry-wide overcapacity and resulting pressure to ASP's [average selling prices] and margins."

Symptoms of the Fall:  Commentary

Chinese PV manufacturers are heavily responsible for the bottom dropping out of panel pricing worldwide. The 2008 US financial collapse had the Chinese dumping panels here in the US forcing stateside and foreign makers to sink or swim to this day.

As I see it, under the Chinese financial model--a blend of communism and pragmatic capitalism--business leaders were used to heavy government with less concern for profit in a free market. Conversely, self-funded, profit-minded competitors around the world must pay more attention to supply and demand. Spoiled, if you will, by the old way things were done, Chinese companies like LDK now had international investors to pay back. It's a lesson the Chinese had to learn sooner or later.

Solar margins continue tumbling

With solar margins continuously shrinking, one might think diversified corporations with solar subsidiaries are better capable and more determined to make solar profitable. But German companies Schott, Schuco and Bosch with solid core businesses scaled back or even ceased their solar operations rather than continue paying for a dying horse, so to speak.

Still, solar is growing worldwide. Cheap panel prices are great for individual and commercial consumers, of course. Dedicated solar manufacturers have found other ways to keep afloat. Beside their widely-acclaimed panels, Sunpower's leasing program has been a huge boost to the company's presence in the US. Sunpower is also generating revenue for inverters, monitoring and racking. Just as Ford started making more than just the Model T, Sunpower's moxie could prove the way of things to come.


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