Solar stocks, the most volatile Chinese equities in New York, will extend declines as Suntech Power Holdings Co. (STP)’s bankruptcy stokes concern they are over- leveraged, according to Gamco Investors Inc. (GBL)
Four of the five stocks with the highest annualized volatility this year among the most-traded Chinese companies in the U.S. are solar makers, according to data compiled by Bloomberg. LDK Solar Co. (LDK), the Xinyu, China-based solar wafer maker down 15 percent in 2013, is posting the widest price swings behind Suntech, which plunged 40 percent this week after defaulting on $541 million of bonds. The Bloomberg China-US Equity Index (CH55BN) advanced 0.5 percent.
Suntech’s inability to repay its debt has brought attention to an industry that has been struggling with excess capacity and slowing demand for alternative energy as governments reduce subsidies. China’s four major solar producers, including LDK, have reported net losses for at least six straight quarters. Suntech, which had more than $2.2 billion of debt by end-March 2012, was subject to a bankruptcy petition this week from eight of its Chinese lenders.
“There clearly will be pressure on other Chinese stocks with heavily leveraged balance sheets and non-existent cash flows,” David Smith, manager of the Gamco’s Gabelli Green Fund, which sold out of its holdings in Chinese solar stocks before 2012, said by e-mail yesterday from Purchase, New York. “The outlook also is strained by Suntech continuing its production. Suntech probably will have to discount their panels more to sell them, putting downward pressure on market pricing.”
Suntech’s American depositary receipts have tumbled 72 percent this year, the biggest decline on the China-US gauge. LDK, which has lost money since the second quarter of 2011, sank 14 percent this week.
Annualized volatility on Suntech’s ADR reached 143, the most among companies on the China-US gauge, while the level for LDK was 101, according to Bloomberg calculations.
Suntech, based in Wuxi of China’s Jiangsu province, said March 21 a local court accepted a lenders’ petition, pushing Wuxi Suntech Power Co., its main operating subsidiary, into insolvency, while production at the unit’s facilities will continue during the debt restructuring period.
The company announced March 11 a forbearance deal with 63 percent of its bondholders, who agreed not to exercise their rights until May 15. Not all the bondholders agreed to the deal and some said they were never contacted by Suntech.
LDK, the world’s second-largest maker of wafers with more than $3.1 billion in debt, hired Citigroup Inc. in December to help renegotiate its liabilities. The company said on Dec. 21 that it received enough consents from the bondholders of its notes due in 2014 allowing it to take on more debt. On Jan. 31, LDK said state-run China Development Bank Corp. approved a 440 million yuan ($71 million) loan to upgrade its Mahong Polysilicon plant.
The company, which has yet to release its fourth-quarter results, said Dec. 3 that net loss for the three months through September widened 20 percent to $136.9 million.
Trina Solar Ltd. (TSL), China’s third-largest solar maker, slid 5.6 percent this week to a three-month low of $3.88, extending its loss this year to 11 percent.
The company, based in Changzhou of Jiangsu province, said in February fourth-quarter net loss widened sevenfold to $267 million in 2012. It received a total of $250 million in credit lines from China Development Bank Corp. during the quarter and had $1.29 billion in bank borrowings, according to its statement.
Yingli Green Energy Holding Co. (YGE), a solar maker based in Baoding of China’s Hebei province, sank 12 percent this week to $2.17 in New York, the lowest level since Dec. 12.
Trina’s volatility was 79 and Yingli’s 78 on annualized basis.
The China-US gauge rallied 1 percent yesterday in New York to 92.26, reversing a loss earlier in the week. The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., added 0.3 percent to $36.94 yesterday in New York, trimming a second weekly slump to 1.3 percent.
The Standard & Poor’s 500 Index (SPX) climbed 0.7 percent to 1,556.89, paring its drop to 0.2 percent in the week.
SouFun Holdings Ltd. (SFUN) jumped 5 percent yesterday to a three- week high of $26.18, posting a weekly gain of 14 percent which was the biggest since November.
Yanzhou Coal Mining Co. rebounded 2.4 percent to $14.11 yesterday, trimming its loss for the week to 3.5 percent. The company, China’s fourth-largest coal miner, reported net income of 6.22 billion yuan in 2012, exceeding the average 5.14 billion yuan estimate of 26 analysts compiled by Bloomberg.
The Hang Seng China Enterprises Index (HSCEI) slid 0.4 percent to 10,896.48 yesterday, extending its five-day loss to 1.1 percent, the second straight weekly decline. The Shanghai Composite Index (SHCOMP) of domestic Chinese shares added 0.2 percent in its fourth day of gains to 2,328.28. The gauge’s weekly jump of 2.2 percent was the steepest since Feb. 8.
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