Yingli Green Energy Holding, China’s third-biggest solar-energy equipment maker, looks like a survivor in an industry that’s losing investor support, the bond market shows.
The manufacturer, based in Baoding in the northern province of Hebei, sold a record 1.5 billion yuan ($238 million) of bonds yielding as little as 5.78 percent, it said in a statement to Chinabond, the nation’s bond clearinghouse, on May 3. The yield on five-year notes of SolarWorld AG, the largest German solar maker, climbed to a record 49.4 percent last week.
The European debt crisis has forced governments to cut support for the purchase of alternative-energy devices, causing global prices of solar panels to plunge 49 percent in the past year. While international investors are spurning dollar- denominated bonds of Chinese manufacturers, state-owned China Development Bank was the lead underwriter on Yingli’s notes.
“Chinese solar companies sell debt in China because state- mandated policies let them and state institutions buy it,” Hari Chandra Polavarapu, an analyst at Auriga USA in New York, said May 2. “Overseas capital markets view Chinese solar companies as state-sponsored employment welfare schemes as opposed to being true corporates.”
Tempe, Arizona-based First Solar, the largest thin- film solar producer, said last month that it will cut 2,000 jobs by the end of the year. That would be the biggest staff reduction for the industry in the US since bankrupt Solyndra LLC, which blamed cheap Chinese imports for its collapse, dismissed its 1,100 employees on August 31. LDK Solar, based in Xinyu city in the southern province of Jiangxi, cut 5,554 workers this year as plunging prices cut margins to record lows, its Chief Operations Officer Xingxue Tong said on a conference call on April 30.
Record-low yields
The yield on Yingli’s 1.4 billion yuan of 2016 bonds fell to a record low of 5.826 percent on April 24, according to Chinabond prices. The company said last month that it signed a “framework agreement” for $324 million of financing from China Development Bank on top of a $5.6 billion facility signed in 2010.
“This successful issuance demonstrates not only investors’ strong confidence in the long-term growth potential of the photovoltaic industry and Yingli’s industry leadership, but also CDB’s recognition of Yingli’s proven track record and solid market position,” Bryan Li, Chief Financial Officer of Yingli said in a May 3 company statement.
A call to the company’s investor relations director Miao Qing was not answered and an e-mail seeking comment on its yuan bond yields was not immediately returned on May 4.
Domestic market attractive
While the domestic bond of LDK Solar fell to a record low of 5.79 percent on May 4, in the international market where bonds are sold according to investor demand, the yield on its three-year overseas yuan bond, which is paid in US dollars, rose to a record 65.16 percent today. An e-mail to the company’s executive vice president Lack Lai seeking comment on its bond yields was not immediately returned.
China Chengxin International Credit Rating, which gave Yingli’s bonds its third-highest ranking at AA, warned of rising debt levels at the company, according to a report released on the Chinabond website April 24. The company will use 60 percent of the money to raise working capital and 40 percent to repay bank loans with higher interest rates, it said.
Yingli’s total debt reached 8.94 billion yuan, or 75 percent of its assets as of the end of September, according to Chengxin’s report published on the Chinabond website. A total of 5.95 billion yuan is short-term debt, it said.
Yingli debt structure
“The company mainly uses short-term debt to suit the relatively short time for construction of solar projects,” Chengxin said. “But considering the large capital support it needs over the long term, a large amount of short-term debt will increase the risks of debt repayment.”
China’s benchmark bank lending rate is at 6.56 percent. Three-year notes and commercial paper, the largest market for corporate bonds in China, rated AA yield 5.37 percent, according to Chinabond.
Chinese solar companies are “starved for cash,” Charles Yonts, an analyst at CLSA in Hong Kong, said in an e-mail May 4. “Most relied on debt to fuel their massive capacity expansion drive over the past five years,” he said.
Credit-default swaps
The yield on China’s 10-year government bonds rose 1 basis point to 3.55 percent last week, according to Chinabond prices.
Five-year credit-default swaps insuring government debt against non-payment increased 0.3 basis point last week to 114.8, according to data provider CMA, which is owned by CME Group and compiles prices quoted by dealers in the privately negotiated market.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
The yuan dropped the most in three weeks today on speculation a worsening outlook for exports will deter China from allowing appreciation. The currency fell 0.1 percent, the most since April 16, to 6.3127 per dollar as of 10:02 am in Shanghai, according to the China Foreign Exchange Trade System.
President Barack Obama’s administration imposed preliminary duties of as much as 4.73 percent on solar-energy equipment imported from China to make up for subsidies they received from China’s government, the Commerce Department said March 20.
Debt sales rise
The Chinese government uses cash grants, raw-materials discounts, preferential loans, tax incentives and currency manipulation to boost exports of solar cells, according to SolarWorld’s October 19 complaint to the trade commission and the Commerce Department.
Top-rated one-year corporate bond yields are near an 11- month low at 4.18 percent, spurring a 31 percent jump in debt sales this year to more than 1 trillion yuan from the same period last year.
“If the bond market rate is lower than the lending rate, I don’t think this is a subsidy,” May Yan, a banking analyst at Barclays Plc said in an interview in Beijing May 4. “Even if you are getting 90 percent of the lending rate it’s still higher than the market rate.”
Solar manufacturers globally are under pressure after oversupply in all parts of the supply chain depressed prices. The spot price of polysilicon has fallen by a third since September, wafers are 35 percent lower and silicon-based solar panels are 25 percent cheaper, Bloomberg New Energy Finance data shows.
China may double its installations of solar panels this year, absorbing excess production that depressed prices and margins in 2011, Suntech Power Holdings Chief Executive Officer Zhengrong Shi and Trina Solar CEO Jifan Gao said in January, suggesting rising demand may support the biggest panel manufacturers as China seeks to consolidate the industry.
“Chinese solar companies are able to secure loans or sell bonds, while their rivals struggle with financing, because of the nation’s specific financial market rather than the industry itself,” Lian Rui, a senior analyst for the research company Solarbuzz, said by phone May 4.
