Chinese equity Suntech Power Holdings Co. (STP) filed for bankruptcy last week, with its stock falling 40% after it defaulted on $541 million in bonds, and this having a snowball effect on solar stocks, with other Chinese solar companies plunging.
Solar stocks are extremely volatile right now and unable to deal with the combination of oversupply and declining demand at a time when government subsidies are being slashed. Suntech’s bankruptcy is the straw that is breaking the solar camel’s back.
This week, China-based solar wafer maker LDK Solar Co. (LDK) saw its stocks plunge 15% riding the wave of volatility sparked by Suntech’s default. LDK is one of China’s four main solar producers, and the other three are also recording net losses over the past year and a half. LDK has more than $3.1 billion in debt and could be the next to fall, though for now it has managed to renegotiate its liabilities and secure more loans despite the fact that its net losses are increasing.
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Earlier this month, Chinese lenders signed a bankruptcy petition for Suntech over the company’s debt in excess of $2.2 billion. Suntech continues to produce solar panels, however, further compounding the oversupply problem and forcing more drops in prices.
Trina Solar Ltd (TSL), the third-largest solar manufacturer in China, hit a three-month low last week of $3.88, with 2013 net losses reaching 11%.
In the meantime, China has reportedly barred Shi Zhengrong, Suntech’s founder, from leaving the country. Also barred from leaving is Suntech CEO David King. The travel ban will continue as the authorities in Beijing investigate the company’s finances. Shi Zhengrong also holds Australian citizenship and once enjoyed the status of China’s wealthiest man. Shi holds an approximately 30% stake in Suntech.
By. Charles Kennedy of Oilprice.com