The Chinese solar industry, still reeling from the "double opposition" imposed by the EU, is not alone in its struggles. It now faces a growing debt default crisis that threatens to shake the entire sector. Recently, Sunway Solar announced it would delay repayment of its bonds, while Suntech Power attempted to renegotiate its debts. As a result, investors holding renewable energy bonds maturing at the end of 2014 are bracing for a potential loss of $8.4 billion.
According to recent reports, Sunway Solar indicated last week that it might not be able to pay its $100 million bond due on September 28. Following this news, the company’s 2014 bonds fell to a record low of 25.6 yuan per 100 yuan face value. Meanwhile, Suntech Power, once the world’s largest solar panel manufacturer, saw its former president and two directors resign during debt negotiations with bondholders. The company has been under significant financial pressure, struggling to meet its obligations.
Premier Li Keqiang has been pushing for a reduced government role in the economy, which has led to increased scrutiny over corporate debt. This has forced investors to reassess the $1.3 billion in corporate bonds set to mature by year-end, including those related to electric vehicles, hydropower, and biofuels, as well as the $7.1 billion in 2014 bonds. Former Premier Wen Jiabao had previously allocated a $47.5 billion credit line to boost China's solar manufacturing capacity, but this led to overcapacity and long-term instability in the industry.
HSBC analyst Wu Yun stated, “The repayment issues faced by Chinese solar companies have shocked investors, who are now waiting to see what the government will do. In the second half of 2014, China may see a surge in credit defaults.â€
**Solar Debt**
On August 15, the Chinese Ministry of Industry and Information Technology reported that the total debt of the country’s top 10 photovoltaic (PV) companies exceeded 100 billion yuan ($16.3 billion). Bonds due in the coming years include GCL-Poly Energy’s 600 million yuan in bonds and ZK Energy Technologies’ 100 million yuan in bonds.
Saiwei Solar failed to fully repay its convertible bonds due on April 15 and is currently reorganizing another $240 million bond that was originally due in June. The company’s second-quarter debt reached $2.8 billion, with only $85.1 million in cash on hand — the lowest level since 2009.
Amit Jain, an analyst at SJS in Bangalore, said, “Saiwei Solar’s failure to meet its obligations marks the beginning of a painful process of elimination in the solar sector, which is already plagued by overcapacity and weak competitiveness.â€
**Suntech Power Reorganization**
Jain also warned that overseas bondholders face even greater risks, noting that “even domestic banks may not be able to fully cover their cash needs.†With several major players in the sector struggling to stay afloat, the Chinese solar industry is entering a critical phase of consolidation and restructuring.
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