Best stock to invest in – Schizophrenic Signals Surround Sino Solar Stocks Yingli, ReneSola And Jinko



Best stock to invest in –

Doug Young

Bottom line: YIngli’s debt restructuring
plan and ReneSola’s early debt repurchase will bring some
confidence to solar shares, but pessimism will quickly return as
their situations deteriorate without major signals of new
government support.

Shares of Yingli (NYSE: YGE)
and ReneSola (NYSE: SOL)
have taken investors on a wild ride these last few weeks,
reflecting the alternating hopes and fears gripping 2 of the
shakiest companies in a solar sector crippled by a downturn now
entering its fourth year. If I were a betting man, I would say the
chances are better than 80 percent that Yingli won’t survive the
crisis, especially after the company’s latest announcement that it
will miss a debt repayment deadline. Chances for ReneSola look
slightly better, but even then I would only put the company’s
likelihood of survival at 50-50.

One of the biggest questions fueling the uncertainty is whether
Beijing and local governments will step in to rescue these
companies. A year ago the answer would almost certainly have been
“no”, reflecting China’s desire to clean up a bloated sector
plagued with excess capacity. Recent signals show Beijing may
still want to let the weakest players fail, but also that China’s
slowing economy may be weakening that resolve.

The latest signals appear to still show that Beijing still wants
to see consolidation, even though that could cost China’s economy
thousands of jobs and other economic activity. One of those
signals came from Yingli, which said that one of its subsidiaries
would miss repayment of $157 million for notes that are coming due
on October 13. (company announcement;
English article; Chinese article)


But just a day later, a more positive signal came from ReneSola,
which said it had begun to buy back notes that were set to come
due as soon as next year. (company announcement)
Last but not least, media also reported that another mid-sized
player, Jinko Solar (NYSE: JKS)
was indefinitely delaying plans to build a new plant in Brazil,
again pointing to the shaky finances that are now undermining many
companies. (English article)

Looking for Cash

The YIngli news is certainly the most worrisome, and will see the
company’s Tianwei Yingli subsidiary miss a
deadline to repay 5-year notes coming due on October 13. But
Yingli held out hope that it could eventually repay the debt,
saying it expects to receive $138 million from the sale of land
and demolition of some older facilities. That could cover most of
the payment if and when it receives the money, which could happen
before the end of the year.

This particular move reflects Yingli’s ongoing woes, but also the
weakening resolve of local governments that looked set to allow
the failure of poorly performing solar panel makers. That’s
because the buyer of Yingli’s land is almost certainly a local
government entity, which means the sale would be almost the
equivalent of a government rescue.

Next there’s ReneSola, which announced it recently repurchased
more than half of about $50 million in convertible notes that will
come due in 2018 but have a put option next year. ReneSola also
said it has repurchased around 800,000 of its American Depositary
Shares (ADSs), as part of a $20 million share buy-back program
announced on September 23.

Both of these moves are clearly confidence-building measures
despite the small amounts of money involved, and they did provide
some support to the broader sector. ReneSola shares jumped about
20 percent after its latest announcement, though they still trade
below their levels from early September. Even Yingli stock, which
tumbled 20 percent after its earlier debt restructuring
announcement, returned to pre-announcement levels.

Finally there was the Jinko Solar news, which looked downbeat as
the company indefinitely shelved plans to build a factory in
Brazil. That plan was part of a growing wave of new outbound
investment announced earlier in the year, which appeared to show
the sector might be returning to health. (previous post) But turmoil in the global
economy may now put many of those expansion plans on hold.

At the end of the day, all of this news points to the same
reality, namely that many Chinese solar companies are struggling
and will face closure without government support. Yingli’s bailout
shows such support may come in limited amounts for now. But I
expect government patience will be short-lived, and we will
ultimately see YIngli and one or two other larger players fail.

Doug Young has lived and worked in China for 15 years, much of
that as a journalist for Reuters writing about Chinese companies.
He currently lives in Shanghai where he teaches financial
journalism at Fudan University. He writes daily on his blog,
Young´s
China Business Blog
, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China,
The
Party

Line: How The Media Dictates Public Opinion in Modern China.

– Best stock to invest in

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