China to Offer More Help to Struggling Solar Companies? (LDK, STP, YGE, TSL, JASO, FSLR, SPWR)

A story in today’s Taiwan-based Digitimes claims that some of China’s top solar panel makers are having trouble repaying their bank loans. LDK Solar Co. Ltd. (NYSE: LDK) is the only firm mentioned by name in the story, but other loan recipients include Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE).

All these firms received a total of about $26 billion in loans during 2010 to expand their manufacturing capacity. That expansion has worked to drive down the cost of solar panels not only for the Chinese makers, but also for US firms like First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR).

The addition of anti-dumping tariffs by the US will curb even further demand for China’s solar panels and there is some indication that anti-dumping investigations will begin in both India and the European Union, making an already desperate situation even worse.

The Digitimes report notes “that if one more large-size vertically integrated solar firm in China reports financial problems, the government is likely to adjust the entire supply chain.” Furthermore:

The China government is likely to help large-size solar firms, especially the ones that are listed on international stock markets, indicated industry sources.

There is plenty of precedent for this kind of help from the Chinese government for its struggling banks. The solar industry has been a strategic investment for the government as well, and it is not unreasonable to assume that the government will take whatever steps it can to make sure the industry survives, even if a few of the players don’t.

Of the five tier one makers we’ve named here, one or two might not make the cut. All the tier two and lower companies are virtually guaranteed to disappear, just as essentially all the weak US companies have and the weak German companies are now disappearing. Taking a long position on any of the Chinese solar makers at this point is not for the faint of heart.

LDK’s shares are down more than -18% today, at $1.83 after posting a new 52-week low of $1.82 earlier. There is no other news on the company today.

Paul Ausick