Doug Young
News that solar panel material maker Baoding Tianwei
is on the brink of collapse has sent shudders through the entire
sector, as everyone guesses who might be next to fall in a looming
new clean-up of China’s bloated industry. Tianwei has been in
trouble for a while now, after the company became the first
state-run firm to ever default on a domestic bond interest payment
back in April.
That development certainly didn’t bode well for Tianwei, but it
remained unclear if the local government or Beijing would
ultimately step in to bail out the company and save its investors.
Now we finally have the answer to that question, following media
reports that Tianwei and 3 of its business units are formally
filing for bankruptcy. (English article; Chinese article)
The bigger picture to this story is that Beijing now appears
willing to let weaker and less efficient solar panel makers and
their suppliers fail, in an effort to create a more solid
foundation for the remaining stronger players. The government
already allowed an earlier round of failures that included former
giants Suntech
and LDK,
but no major closures have come since then. But that looks set to
change now.
According to the latest reports, Tianwei announced its insolvency
and inability to pay its debts on the website Chinamoney.com.cn, a
website of the China Foreign Exchange Trade System.
The company cited the slowdown in the broader global economy, as
well as overcapacity in the solar panel sector for its decision.
Tianwei was traditionally a maker of electrical transformers, but
more recently got into the business of making polysilicon, the
main material used to makes solar panels. Such a move may sound
puzzling to many westerners, but is actually quite common for big
Chinese state-run companies that often rush into new business
areas that Beijing sets as priority areas for development. In this case, Tianwei and many other state-run firms piled into
the solar sector, only to incur big losses when their mass action
created a huge oversupply on the global market. Tianwei reported a
loss of 10.14 billion yuan ($1.6 billion) last year, with total
debt at 21 billion yuan, far higher than its total assets of 13
billion yuan.
Solar Sell-Off
Tianwei’s bankruptcy announcement sent shivers through stocks of
US-listed solar panel makers, as investors worried over what the
bankruptcy might mean for the rest of the sector. In this case
it’s quite easy to tell which companies are the biggest sources of
concern by looking at the magnitude of their share declines.
Leading that group was the wobbliest company, Yingli
(NYSE: YGE),
whose shares plunged 24 percent on the news. Yingli is one of the
few major solar players that failed to return to profitability as
the sector downturn eased, and previously warned that it could be
in danger of going out of business. Adding to the worries, the
company’s headquarters are also in the northern Chinese city of
Baoding where Tianwei is based, indicating the local government
may not step in to provide any relief.
The other big loser in the Friday sell-off was the loss-making ReneSola
(NYSE: SOL),
whose shares tumbled 14 percent to close below the symbolically
significant $1 threshold. Most other solar companies also got
caught up in the sell-off but to a smaller extent, with stronger
names Canadian Solar (Nasdaq: CSIQ)
and Trina (NYSE: TSL)
both down by around 7 percent.
Shareholders are correct to be worried about weaker names like
Yingli and Renesola, as these companies clearly could face growing
difficulties if their financial situation continues to
deteriorate. But I question the sell-off for the strong names like
Canadian Solar, since these companies could be well positioned to
buy up assets at bargain prices from failed companies like Tianwei
and others that could soon follow into bankruptcy.
http://www.altenergystocks.com/archives/2015/09/solar_weaklings_shudder_on_tianwei_c ollapse.html
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