Best stock to invest in – Shriveling Yingli Fends Off Bond Holders

Best stock to invest in

Doug Young 

Bottom line: Yingli is likely to get sold or
announce a major government-led restructuring, which could
include bankruptcy, before a new round of 1.4 billion yuan in
bonds comes due next month.

In what looks like a case of deja vu, fast-shrinking solar panel
maker Yingli (NYSE: YGE)
is in the headlines again as it looks set to default on 1.4
billion yuan ($220 million) worth of bonds set to come due next
month. The default would be Yingli’s second within a year, after
it failed to pay off part of another big bond that matured last

Yingli is still working to repay the remaining debt from that
earlier bond, which amounts to another 1 billion yuan. That means
that Yingli now needs to find some $375 million in funds to repay
all of its maturing debt by the time the new round of 1.4 billion
yuan in medium-term notes come due on May 12. That looks all but
impossible for a company that’s bleeding money, which resulted in
a $500 million net loss during its latest reporting quarter.

Despite the latest looming crisis, shares of YIngli, once China’s
biggest solar panel maker, were only down 0.9 percent in the
latest trading session in New York. But there’s not much more
downward space for the company’s stock to fall, since at its
current level Yingli is only worth $83 million.

Investors lack of panic at the latest looming crisis could mean
several things. Most likely many serious investors have already
given up on Yingli, and the only people left are simply day
traders looking for big swings in the stock to make some quick
profits. Some more serious investors may be waiting for another
government bailout like the one that allowed Yingli to repay 70
percent of the bond that came due last October. (previous post)

One other possibility that looks increasingly likely is that
Yingli’s hometown government and biggest backer, the industrial
city of Baoding, may finally be tiring of bailing out this
struggling company and want to merge it with a stronger rival. If
that occurs, I expect the company could sell for even less than
its current market value. Or Baoding could even let Yingli go
bankrupt first, making its New York-traded stock worthless.

According to its latest announcement, Yingli says it held 2
meetings on March 28 with holders of its bonds set to come due on
May 12, as well as holders of 30 percent of its bonds that came
due last October but still remain unpaid. (company announcement;
English article)

‘Very Difficult’ Debt

YIngli told holders of the notes coming due next month that it
would be “very difficult” to repay the money, and proposed a 2-3
year extension on the repayment. At the other meeting, holders of
the 30 percent of bonds that came due last October but have yet to
be repaid demanded repayment plus interest. Yingli said it would
make its best efforts to repay the money before the May 12
deadline when the new round of bonds matures.

The wording in Yingli’s statement hints that the company may be
aiming to resolve all of the default issues by May 12, so perhaps
everyone is sitting back and waiting to see what happens as that
date nears. Frankly speaking, my sense is that the only reason
Yingli continues to stay in business now is that the Baoding
government doesn’t want to deal with a messy situation that might
come with a bankruptcy declaration.

Yingli was once a solar superstar, but its fatal flaw was relying
too heavily on low prices to gain market share without innovating
very much. That strategy worked when the market was booming and
prices were high, but has now saddled Yingli with huge losses due
to weak pricing for its cheap solar panels. All of that said, it
really does seem like the sun set on Yingli about a year or two
ago, and it’s quite possible we could see a sale or major
government-led restructuring announced just before next month’s
May 12 deadline.

Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog,
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,

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

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