Solar companies: we can survive

Canadian Solar looks set to survive the solar industry's ongoing crisis using its new business model, while LDK is slowly being taken over by an opportunistic buyer

Doug Young

Published: 2:14pm, 3 Jul 2013

Why you can trust SCMP

A mini flurry of news from embattled solar panel makers seems to have the same singular message, designed to tell investors that they can survive an industry crisis now entering its third year. Of course the companies that emerge when the crisis finally subsidies could be far different from the ones that went into the crisis, which seems to be the message from LDK (NYSE: LDK) in its latest announcement involving its slow takeover by a Chinese investor. At the other end of the spectrum, the message from Canadian Solar (Nasdaq: CSIQ) is a more upbeat, with the company forecasting a return to profit for all of 2013 as it rolls out a new business model. Finally in the middle there's Trina (NYSE: TSL), which is simply trying to show investors it's capable of repaying its debt.

Investors responded to this flurry of news by continuing to treat solar stocks as mostly gambling toys rather than real investment instruments, as everyone waits to see what kind of industry will emerge from the ongoing sector retrenchment. Only Trina's shares managed to rally on its relatively upbeat news, rising 3.5 per cent after it said it would repay its debt coming due later this month.

Canadian Solar shares actually fell 2 per cent after it forecast that it would turn a profit for all of 2013. But I should also note that the company's shares have staged an incredible rally over the last few months, nearly quadrupling since late March, So perhaps the stock was due for a break on this latest good news. Lastly, LDK shares fell 5 per cent on the latest news that the company is being slowly taken over by another Chinese investor.

Let's start with a closer look first at Canadian Solar, whose forecast of a return to profits for all of 2013 is part of a larger announcement about the sale of a solar power plant that it built. In this case, Canadian Solar sold the 10 megawatt plant in Canada to TransCanada Corp (NYSE: TRP). The plant is the first in a bigger deal by Canadian Solar to sell a total of nine similar-sized plants to TransCanada. Solar companies have turned to this kind of deal, in which they build plants for operators, in a bid to generate new business during the ongoing crisis.

This kind of model does indeed look like a good source of new business, assuming buyers like TransCanada actually end up paying for all the new plants they promised to buy. Canadian Solar says the sale is part of its goal to obtain half of its revenue from building such plants for operators, which is a key part of its strategy for posting a profit for the full-year 2013.

From Canadian Solar, let's look quickly at Trina, which said it expects to finish paying off US$138 million worth of five-year bonds by their due date later this month. In this case most of the notes have already been redeemed, and Trina still needs to repay US$57 million. But the message is clear. Trina is saying it has the money to repay its obligations and will continue to honour its debt, at least for now.

Finally there's LDK, the weakest of China's major solar players, which announced it has issued 25 million new shares to Fulai Investments for US$1.03 per share. Based on its latest share price, the sale would account for about 12 per cent of LDK's market value. Fulai had previously purchased 19 million shares of LDK, meaning it should now own about 20 per cent of the struggling company. Look for Fulai to keep boosting its stake, most likely at the expense of existing shareholders, as it slowly takes over LDK.

Bottom line: Canadian Solar looks set to survive the solar industry's ongoing crisis using its new business model, while LDK is slowly being taken over by an opportunistic buyer.

To read more commentaries from Doug Young, visit youngchinabiz.com

Post