Two of China’s biggest solar manufacturers are taking steps to boost the value of their American depositary receipts after prices fell below listing requirements.
JA Solar Holdings Co., China’s largest solar-cell maker, said today it will make its Nasdaq-listed ADRs worth five regular shares, up from one now. LDK Solar Co., the second-biggest supplier of polysilicon wafers for the cells, is working to raise its ADRs above $1 after the New York Stock Exchange warned they may be delisted for failing to meet the minimum threshold, according to a statement today.
The moves follow a similar warning issued to industry leader Suntech Power Holdings Co. in September and add to pressure on solar manufacturers struggling with declining prices, thinning margins and plunging earnings. The three companies sold shares in New York between 2005 and 2007 to finance factory expansions, leaving them with too much capacity when the recession drove down demand for panels.
“They’re fighting to stay alive,” Aaron Chew, an analyst at Maxim Group LLC in New York, said by phone today. The low ADR prices are symptoms of larger problems on their balance sheets, and they have few options available to boost their ADR prices, he said.
“They need to recapitalize and restructure their debt,” Chew said. A reverse split may be only a temporary fix. Eventually, “the price could just go back to $1.”
Suntech, which traded as high as $88.35 a share in December 2007, has closed below $1 on all but one trading day since Sept. 25. LDK fell 8.2 percent to 88 cents at 11:04 a.m. in New York, down 72 percent in the past year and 99 percent from a peak of $73.95 in September 2007. JA Solar peaked at $25.75 in April 2008 and has been below $1 since August 28.
Those companies are three of the world’s five biggest solar cell makers by production capacity, according to data compiled by Bloomberg. The two others, Yingli Green Energy Holding Co. and Trina Solar Ltd., have experienced similar stock declines but remain above the $1 threshold.
Chinese companies used cash from public offerings to boost panel production, wresting leadership of the industry away from German manufacturers such as Q-Cells SE and Sharp Corp. of Japan. Q-Cells, after filing for insolvency, agreed in August to sell most of its assets to Hanwha Group of South Korea. Sharp has said it will scale back its solar business to avoid bankruptcy.
The surge in output from China depressed panel prices, which fell 56 percent in the past two years to 79.3 cents a watt.
Companies in other regions weren’t spared from slumping panel prices. Solarworld AG (SWVK), Germany’s biggest maker of panels, fell below the 1-euro mark for the first time today, dropping 9.5 percent to 95 euro cents a share in Frankfurt trading. The Bonn-based manufacturer, which lost money in four of the past five quarters, peaked at 47.95 euros a share in November 2007.
Investors are reluctant to invest in solar companies, Macquarie Group Ltd. analysts Robert Schramm-Fuchs and Shai Hill wrote in a note yesterday. “Given the painful experience of solar stock price collapses over the last four years, investors will want to see tangible signs of an improvement before returning to the industry,” they said.
Jaso’s new ADR ratio will take effect Dec. 10, boosting the price overnight.
LDK received the delisting notice after the average closing price for its ADRs was 99 cents, below the $1 threshold, for 30 trading days as of Nov. 5. The company has six months to raise the price above that level and “has notified the NYSE of its intention to cure this deficiency” according to the statement, though it didn’t say how it plans to do so.
LDK is selling 19.9 percent of itself, arranging financial support with help from local governments and terminating some supply contracts to shore up its balance sheet.
Suntech also has said it will raise its ADR price without providing specifics, and is also receiving financial support from local governments.
Those “token loans from the local provinces,” which are in the tens of millions of dollars, “are a drop in the bucket as far as liquidity needs,” said Jeff Osborne, an analyst with Stifel Nicolaus & Co. in New York.
Suntech has total debt of $2.3 billion, while LDK owes about $3.6 billion and Jaso owes about $824 million, according to data compiled by Bloomberg.
“The bigger impact on the minds of solar investors at the moment is the new government taking over there and the access to capital,” Osborne said in an interview today. “They’re burning so much cash, but in the past they were given lines of credit to use. If you see people start putting a freeze on the ability to access that, that’s a big issue.”
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