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Debt fears dog solar power suppliers

Renewable energy companies must repay US$3.5 billion this year, giving investors worries about another default in the sector

PUBLISHED : Wednesday, 15 May, 2013, 12:00am
UPDATED : Wednesday, 15 May, 2013, 5:58am

Renewable energy companies from the mainland and Hong Kong need to repay US$3.5 billion of debt this year, prompting global investors to fret that another issuer will follow Suntech Power into default.

Solar, wind, hydro and nuclear companies also have the equivalent of US$5.3 billion of notes due next year. The 2014 yuan bonds of LDK Solar, which failed to fully repay US$23.8 million of convertible notes last month, slid to a seven-month low of 34 yuan (HK$43) per 100 yuan face value this week, pushing the yield to 220 per cent.

The debt pile includes US$766.5 million of dollar-denominated convertible bonds in solar companies whose shares have slumped 88 per cent from their 2007 high, making the equity option unattractive for investors.

Suntech, once the world's biggest solar panel maker, defaulted on a US$541 million equity-linked bond in March, while LDK Solar must settle a US$240 million loan unless it spins off a subsidiary by June 3, filings show.

Bryan Collins, a fixed-income portfolio manager at Fidelity Worldwide Investment, said: "For the solar companies, it's a function of too much debt and poor market dynamics leading to an inability to refinance.

For the more experienced and conservative companies, they will refinance well in advance but, for convertible bonds especially, I think they issue on the hope some will be converted to equity

"For the more experienced and conservative companies, they will refinance well in advance but, for convertible bonds especially, I think they issue on the hope some will be converted to equity."

While shares of the biggest solar companies have rallied 43 per cent this year as near-zero interest rates in the United States, Europe and Japan burnish the appeal of riskier assets, they plunged for four of the past five years.

Suntech's stock has slid to 63 US cents from a high of US$47.81 in August 2008 after the bonds were sold. The Chinese solar issuers with dollar convertibles maturing this year all booked losses last year or are expected to have done so.

JA Solar's shares have fallen 95 per cent since the company sold its notes in 2008, while China Sunergy slid 93 per cent and Trina Solar lost 58 per cent of its value.

JA Solar, whose convertible bonds mature today, is prepared to repay the debt, its chief operating officer Xie Jian has said. The company had 3.03 billion yuan of cash and cash-equivalent assets at the end of last year.

China Sunergy had US$183 million of cash or near cash assets as of December 31 last year, and is slated to repay US$1.5 million of convertible debt on June 15.

The company's bonds were quoted at 71.9 cents on the dollar as of May 13, according to BCP Securities.

Trina Solar, based in Changzhou, owes US$83.6 million and had US$807 million in cash at the end of last year. Its chief financial officer, Terry Wang, said this week that it, too, would tap its cash pile to pay off the debt.

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