Suntech Power Holdings Co., Ltd. (ADR) (STP), LDK Solar Co., Ltd (ADR) (LDK): China’s Bad Loans Signal Problems for Solar

Yingli
Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) is the world’s largest vertically integrated PV manufacturer covering the entire PV value chain. Yingli was negatively affected by decreasing demand for its PV modules and reductions in government subsidies, which in some markets make the switch to solar power viable. There have also been problems in its supply chain with late or failed deliveries of the raw material polysilicon used in production.

Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE)’s short-term borrowings declined in 2012 by 8.5% from 2011’s borrowings, after rising about 40% from 2010 to 2011. The company’s accounts payable balance decreased and stands at $767.1 million, as of June 30. The quarter also had an improvement in the timely payment of short-term debt — days payable outstanding was 142 days, compared to 161 days in the first quarter. The company, which began operating in 2003, believes that sales will increase from expansion into Europe and the U.S. Yingli also states it has sufficient working capital for its present requirements.

While revenues grew by 8.9% year over year, the second quarter of 2013 had a net loss of $52.3 million and loss per share was $0.33. The company reported a gross margin of 11.8% compared to 4.1% in the first quarter of 2013. Demand from the U.S., China, Japan, and other emerging markets is expected to increase by over 60% in the second half.

My foolish conclusion
The solar energy sector in China is navigating considerable market challenges, which include western tariffs and diminishing government incentives to switch to solar energy. The industry can benefit from rising prices in PV components if it maintains its costs under control. A recent New York Times article explained how the cost involved in building a solar panel manufacturing facility makes up a big chunk of the cost of manufacturing each panel. The current overcapacity faced by the industry forces companies to continue to operate to cover just part of the hefty interest on loans taken out to finance these factories and their equipment. This creates a money-losing situation that’s difficult to turn around when demand is low.

The article China’s Bad Loans Signal Problems for Solar originally appeared on Fool.com.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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