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 among the most-traded Chinese companies in the U.S. are solar makers, data compiled by Bloomberg show. 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 last 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 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 the end of March 2012, was subject to a bankruptcy petition last 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 Gamco’s Gabelli Green Fund, which sold out of its holdings in Chinese solar equities before 2012, said by e-mail March 22 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 Bloomberg China-US gauge. LDK, which has lost money since the second quarter of 2011, sank 14 percent last week.
Annualized volatility on Suntech’s ADRs reached 143, the highest level among companies on the China-US index, while the level for LDK was 101, according to data compiled by Bloomberg.
Suntech, based in Wuxi, China, said March 21 that a local court had accepted a petition putting Wuxi Suntech Power Co., its main operating subsidiary, into insolvency. 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 solar wafers, has more than $3.1 billion in debt. The company hired Citigroup Inc. in December to help renegotiate its liabilities and said Dec. 21 that it received enough consents from holders of its 2014 notes to allow it to take on more debt. LDK said Jan. 31 that state- run China Development Bank Corp. approved a 440 million yuan ($71 million) loan to upgrade its Mahong Polysilicon plant.
The company, which is yet to release its fourth-quarter results, said Dec. 3 that a 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 last week to a three-month low of $3.88, extending its loss this year to 11 percent.
The company, based in Changzhou, China, said in February that its 2012 net loss widened sevenfold to $267 million. Trina 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, China, sank 12 percent last week to $2.17 in New York, the lowest price since Dec. 12. The company has the equivalent of $603 million in principal debt repayments due in 2015, data compiled by Bloomberg show.
Trina’s volatility is 79 and Yingli’s 78 on an annualized basis.
The China-US gauge rallied 1 percent March 22 in New York to 92.26, after falling over three of the previous four days. 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 March 22 in New York, trimming its 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 March 22 to a three- week high of $26.18, posting a weekly gain of 14 percent, the biggest since November.
Yanzhou Coal Mining Co. (YZC) rallied 2.4 percent to $14.11 March 22, 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 for 2012, exceeding the 5.14 billion yuan average of 26 analysts’ estimates compiled by Bloomberg.
Hong Kong’s Hang Seng China Enterprises Index (HSCEI) slid 0.4 percent to 10,896.48 March 22, 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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