Yingli Joins State Bail-Out Queue

Yingli gets state lifeline

Yingli (NYSE: YGE) has become the latest player in China’s struggling solar sector to get a lifeline from Beijing, as an interesting picture starts to emerge of the relative health of the sector’s major players and who is likely to lead a coming consolidation. The list of who gets these lifelines could also reflect the relative importance Beijing places on China’s wide and varied field of solar panel and panel component makers, meaning some of these lifeline recipients could emerge as potential leaders to help consolidate the sector in the months ahead.I should make a big disclaimer here by saying my observations are based only on public disclosures that I have seen, and that some of the industry’s other major players could also be quietly receiving their own state-backed lifelines that they simply haven’t disclosed yet with official announcements. But that said, I do suspect that most of the big solar names will disclose any big new state support they get, since such support is usually critical to their survival.

With that lengthy disclaimer as an introduction, let’s take a closer look at the latest news that has Yingli saying it has secured 2 new loans worth a combined $165 million from China Development Bank, a major policy lender that is quickly emerging as Beijing’s main tool to bail out the solar sector. (company announcement) Yingli didn’t say very much else in its announcement, except to state the obvious that the loans would help to strengthen its balance sheet.

Investors welcomed the news, bidding up Yingli shares by 8.5 percent after the announcement. Other big solar players also rallied, with Trina (NYSE: TSL) up 9.6 percent, Canadian Solar (Nasdaq: CSIQ) up 4.4 percent and JA Solar (Nasdaq: JASO) up 3.4 percent. Even beleaguered LDK (NYSE: LDK), which is rapidly selling off assets to stay afloat, rose 4.6 percent, though bankrupt Suntech (NYSE: STP) managed to buck the trend and fell slightly.

With its announcement, Yingli becomes the latest in China’s solar sector to receive a temporary reprieve from China Development Bank. Mid-sized manufacturer ReneSola (NYSE: SOL) announced its own new 320 million yuan ($51 million) credit line from China Development Bank in March (previous post), which followed LDK’s announcement a month earlier that it received a similar 440 million yuan in new financing from the bank. (previous post) China Development Bank has also provided past financing for Suntech, and late last year provided major new funds for wind power equipment maker Ming Yang (NYSE: MY) to build new projects in India. (previous post)

So the big questions become: How can one interpret this flurry of activity by China Development Bank, and what’s likely to happen next? I would expect we’ll see CDB make 1 or 2 more similar big loans to other major players in the next month or two, giving everyone the funds they need to survive for the next couple of quarters. The bank will then use its clout with the companies to promote consolidation, providing financing and other assistance to force a series of mergers and closures of smaller, inefficient players.

Investors are likely to look favorably on most loan recipients, as many will believe those companies are likely to emerge as the top new players after a state-led consolidation. If I were a betting man, I would say that loan recipients do indeed look like Beijing’s picks to become future leaders. That’s because even though CDB is a policy lender with less emphasis on earning profits, it’s still unlikely to pour money into companies that Beijing thinks has no future.

Bottom line: Yingli’s receipt of a lifeline from Beijing indicates it and other similar loan recipients are likely to lead a state-sponsored restructure of the solar sector.

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