China Bails Out World's Largest Maker Of Solar Panels

Tyler Durden's picture

Chinese local governments are facing the prospect of major unemployment problems should the swathe of solar panel makers, that have been subsidized from birth to now-near-death, continue to suffer from US and European tariffs (as well as simple gross mis-allocation of capital amid massive over-capacity). However, as is the way of the mal-investing world today, no barrier to rational economic theory is too low for government status-quo maintenance as it would appear that local banks have been strong-armed into extending loans to keep them alive. As Reuters reports, debt-laden (NYSE-traded) SunTech Power Holdings  - which is close to removal from the exchange due to its dismal equity price - has just received new 'bailout' loans. First, it was a race to debase. Now, we have the race to bailout the world's most worthless companies (especially in channel-stuffed industries) as the New Normal trade wars continue.

 

Via Reuters:

Banks in Wuxi, Jiangsu province, have extended new loans totalling 200 million yuan ($31.73 million) to locally headquartered solar power giant Suntech Power Holdings Co Ltd, the Shanghai government-owned China Business News reported on Friday, citing anonymous sources.

 

Suntech, the world's largest maker of solar panels, whose shares hit a high of $90 in early 2008, runs the risk of being removed from the New York Stock Exchange for failing to keep the average closing price of its shares higher than $1 over the last 30 trading days as of Sept. 10, Suntech said in a statement on Sept. 21.

 

Shares in Suntech, like rivals JA Solar Holdings Co , Trina Solar Ltd and Yingli Green Energy Holding Co, have fallen sharply in the past three years as sales prices have tumbled, squeezed by declining demand in export markets and overcapacity at home.

 

Debt-laden Suntech's shares have also been hit after it said in July that its partner in a solar development fund might have defrauded it with a bogus collateral pledge of hundreds of millions of euros of German bonds.

 

Local governments that invested heavily in supporting the development of solar power companies in their regions now face the likelihood of big local unemployment problems if those firms collapse. Last week Suntech announced it would lay off around 1,500 people from one of its plants in Wuxi.

 

LDK Solar, which reported a second-quarter loss nearly three times bigger than a year earlier, has also recently received local government money. In July the government of Xinyu in Jiangxi province announced it would use taxpayer funds to pay off some of the company's loans.

 

Beijing has asked provinces to provide plans as to how they will increase solar energy in their power mix by 2015, and state media reported that China Development Bank is preparing plans to provide further credit support, but all of this help has caused complaints in the U.S. and Europe.

 

The U.S. imposed import duties on Chinese solar panels as of May, and an anti-dumping investigation against Chinese solar companies is underway in Europe. The erection of trade barriers against Chinese solar products would make it even more difficult for the industry to resolve its capacity and inventory gluts.

 

Local branches of Bank of China Ltd , Industrial and Commercial Bank of China Ltd , Agricultural Bank of China Ltd , China Construction Bank Ltd and policy lender China Development Bank joined together to make the loan, the report said.