Corporate debt defaults worry about China's PV prospects

The Chinese solar industry, which recently faced the "double opposition" from the EU, is not alone in its struggles. It now finds itself in a severe debt default crisis. Recently, Sunway Solar delayed its debt repayments, while Suntech Power attempted to restructure its obligations. As a result, investors holding renewable energy bonds maturing at the end of 2014 could face losses amounting to $8.4 billion. According to recent reports, Sunway Solar announced it might delay the payment of bonds due on September 28. Following this news, the company’s 2014 bonds with a face value of 100 yuan fell to a record low of 25.6 yuan. Meanwhile, Suntech Power, once the world's largest solar panel manufacturer, saw its former president and two directors resign during negotiations with bondholders who had defaulted on their debts. Premier Li Keqiang has been working to reduce the government’s role in the economy, pushing investors to reassess the $1.3 billion in corporate bonds due by year-end, including those related to electric vehicles, hydropower, and biofuels, as well as the $7.1 billion in bonds that matured in 2014. Data from Bloomberg reveals that former Premier Wen Jiabao allocated a $47.5 billion credit line to boost China’s solar production, making it the world’s largest producer. However, this overinvestment led to significant overcapacity, undermining the industry’s long-term health. HSBC analyst Wu Yun noted, “The repayment issues of 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 witness a wave of credit defaults.” **Solar Debt** On August 15, China’s Ministry of Industry and Information Technology reported that the debt of the country’s top 10 photovoltaic (PV) companies has surpassed 100 billion yuan ($16.3 billion). Bonds set to mature in the coming year include a 600 million yuan issue from GCL-Poly Energy, the world’s largest multi-silicon crystal manufacturer, and a 100 million yuan bond from ZK Energy Technologies, a wind-solar hybrid company. Suniway Solar failed to fully repay its convertible bonds due on April 15 and is now restructuring another $240 million bond originally due in June. The company’s second-quarter financial report showed total debt of $2.8 billion, with only $85.1 million in cash — the lowest level since 2009. Amit Jain, an analyst at SJS based in Bangalore, stated, “Sunway Solar’s failure to meet its obligations signals that the solar energy sector, already plagued by overcapacity and weak competitiveness, is entering a phase of market consolidation, where only the strongest will survive.” **Suntech Power Reorganization** Jain added that overseas bondholders face even greater risks, as “even domestic banks may not be able to fully cover the cash needs.” This uncertainty has created a tense environment for both local and international investors, highlighting the growing fragility of the Chinese solar sector.

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