NEW ENERGY: Yingli’s New Deadline, Hanergy’s Plunging Value

Bottom line: Yingli’s shares could rebound a bit as concerns ease about an imminent bankruptcy, while Hanergy’s shares are likely to continue sliding when trading resumes to correct from a massively speculative recent run-up.

Hanergy shares tumble

This week has been a volatile time for solar company stocks, which have taken a beating after Yingli (NYSE: YGE) warned about its ability to stay in business due to its heavy debt load. Now Yingli has put out a new statement saying its earlier warning was misinterpreted, helping to reverse a huge sell-off of its shares as it laid out the next big deadline in the struggle to repay its debt.

At the same time, Hong Kong-listed solar equipment maker Hanergy (HKEx: 566) has also been in global headlines, after its shares lost nearly half their value in just a matter of minutes in Wednesday trade. Media are focusing on the huge price swing, which no one seems able to explain. But this really looks like a story of stock manipulation by speculators rather than one of any significant change in the company’s prospects, which once again underscores the dangers of dealing in this kind of thinly-traded stock.

Let’s start with Yingli, whose shares lost nearly half of their value in the first 2 trading days of this week after it said its heavy debt load could affect its ability to stay in business. (previous post) That sell-off pushed the shares to an all-time low, as investors worried about a bankruptcy that could have rendered the stock worthless.

Now Yingli has issued a new statement saying investors misinterpreted its earlier words, sparking a rally that saw the stock jump 25 percent in the latest trading session. But even with the rebound, the shares are still down more than 30 percent from where they began the week, showing that investors are still quite concerned about the company’s ability to service its debt.

In the new statement, Yingli said its earlier statement was taken out of context and it’s “optimistic and confident” about its ability to continuing serving the global solar market. (company statement) Of course it would have been much better if it could have said it was confident about its ability to service its debt, which totals more than $2 billion.

But it did note that its next big debt repayment of 1 billion yuan ($162 million) will come due on October 13, and that it believes it will be able to repay that amount on schedule. The amount isn’t really all that large, and Yingli previously sold off some of its land to pay off another debt obligation earlier this month. Still, using land and other asset sales to pay off debt isn’t a great long-term business strategy, and the money-losing Yingli will need to plot a path back to profitability soon if it really wants to survive.

Meantime, we’ll look very quickly at Hanergy, which makes equipment to produce thin film used to make solar energy. This company defied logic and saw its shares soar 6-fold since last September before the sell-off. That means that even after the sell-off that saw the shares plunge 47 percent in just 27 minutes of trade, the stock is still triple its price from last September. (English article)

Hanergy now has a market value of $20 billion, which is far larger than any other solar company, most of whose shares remain depressed due to stiff competition. And yet despite that huge market value, the plunge in price was based on a trading volume of just 175 million shares, which probably had a total value of around $120-$140 million.

That small figure reflects the fact that Hanergy’s share float is very small, and thus the company’s stock price is easily manipulated. The company may have good enough prospects, but it’s recent stock run-up was far out of proportion to its growth potential. Accordingly, this latest plunge looks like a much-needed correction, and the shares could continue to fall re-approach their earlier levels once trading resumes after a temporary halt.

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