Default risk as China's clean-energy players face record debt payments

Default risk grows as Beijing's push results in over-investment in the industry

PUBLISHED : Saturday, 05 April, 2014, 1:07am
UPDATED : Saturday, 05 April, 2014, 1:07am

The mainland's clean-energy industry faces record debt payments this quarter, heightening a battle for survival after a solar panel maker became its first onshore bond issuer to default.

Companies generating power from the sun, wind and water must pay the equivalent of US$4.2 billion in onshore and offshore notes by June 30, 10 times more than the previous quarter. The average yield on five-year AA-rated securities has jumped 171 basis points in the past year to 7.3 per cent on concern over delinquencies. That compares with 2.86 per cent on corporate bonds globally, Bank of America Merrill Lynch indices show.

While Beijing is speeding up the development of zero-emission technologies as it battles smog an official adviser called "intolerable", it refrained from intervening to help Shanghai Chaori Solar Energy Science & Technology meet its debts last month. Notes of Baoding Tianwei Baobian Electric were suspended from trading last month after the solar-cell maker reported losses, and Sinovel Wind said its securities might also be delisted.

"The worst isn't over," said Shi Lei, head of fixed-income research at Ping An Securities. "Many solar or wind companies rely on foreign or domestic government subsidies. It's possible that another company in the industry may default."

Environmental degradation prompted the mainland to increase investment in clean energy over the past decade. The country poured US$61.3 billion into the industry last year, exceeding US$48.4 billion in the United States.

Authorities are now trying to cut capacity in the solar and other green-energy industries after over-production caused equipment prices to tumble. Wind-turbine and solar-power industries faced "relatively large pressure" from excessive capacity, the State Council said last year. Shang Fulin, chairman of the China Banking Regulatory Commission, said on March 11 that it would seek to limit lending to industries with overcapacity.

"Solar companies are still facing overcapacity problems," said Li Ning, a bond analyst at Haitong Securities. "Some need to cope with a heavy debt burden. We can't exclude the possibility that the next default may happen in the industry."

Five out of 12 companies flagged by China International Capital Corp as having outstanding onshore bonds in "great need" of more scrutiny after credit profile changes were in the green-energy industry.