LDK (NYSE: LDK), based in China, is one of the world’s largest producers of solar wafers, as well as a manufacturer of high-purity polysilicon. But, the solar industry is painfully oversupplied, and most if not all solar firms are losing money.
LDK had an operating loss of $172 million in the second quarter and three straight quarters of losses before that. Because it is a major employer in the poor province of Xinyu, the local government stepped in to pay off $80 milllion in debt a few months ago. As Jeff St. John wrote, “Looks like the Chinese model of solar capitalism has entered a new and, at least for its global competitors, a more troubling phase.”
It gets worse.
LDK just sold a 20 percent stake in the troubled firm to Heng Rui Xin (HRX) Energy, a Chinese state-run entity, for approximately $23 million, according to a report in Bloomberg. According to the report, Heng Rui Xin is paying a 21 percent premium to LDK’s Friday closing price of 71 cents. The owner of Heng Rui Xin is Hi-Tech Wealth Investment and Developing Co. and state-owned Asset Management Co., with a 40 percent stake. LDK calls HRX “a PRC company invested by privately owned and state-owned funds” on its website.
The news comes amidst a full-blown solar trade war with the United States, which has put tariffs on Chinese imports that are driving some companies out of business. China is threatening retaliation. Meanwhile, it’s not clear that U.S. tariffs will have the intended effect. GTM Research has reported that Chinese module suppliers can avoid it by sourcing cells from Taiwan at an estimated additional cost of only 6 cents to 8 cents per watt, and sources have confirmed that Chinese module prices in the U.S. have continued to trend downward even after the tariff ruling.
Does this validate the SolarWorld and CASM claim of unfair competition and trade? Will tariffs even the playing field for U.S. solar manufacturers? Could this announcement impact the final ITC decsion next month?
Any U.S.- or EU-based firm with financials similar to LDK would long since be bankrupt, in the spirit of Q-Cells or ECD.
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