LDK Solar Co. (LDK), the second-most indebted solar manufacturer, won’t be able to pull off a deal needed to cover a loan due to Chinese lenders next week.
The company “is not currently intending” to spin off its polysilicon unit by June 3, as required under the terms of a $240 million investment it received in 2011, according to a filing May 20 with the Securities & Exchange Commission.
Failure to complete an initial public offering of its LDK Silicon unit means holders of convertible preferred shares may demand repayment of the investment plus 23 percent, about $295 million. It’s unlikely to make that payment, the second time this quarter it missed a debt obligation, according to Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York.
“They can’t make the payment,” Zino said in an interview yesterday. “We wouldn’t expect them to, based on cash on hand.” The company had $98.3 million in cash at the end of December, a three-year low.
Calls and e-mails to Xinyu, China-based LDK’s chief financial officer Jack Lai in Sunnyvale, California, weren’t returned.
LDK will probably be able to renegotiate the debt with China Development Bank and affiliates of Bank of China Ltd. and China Construction Bank Corp. (939), Zino said. It may restructure the preferred shares and “find a way to extend their time horizon,” he said. The “lenders don’t really have any other choice.”
That will help LDK avoid the fate of Suntech Power Holdings Co. (STP), the industry’s biggest panel supplier in 2011. Suntech’s main unit was dragged into bankruptcy proceedings in China in March after the company defaulted on $541 million bond.
LDK didn’t fully repay a $23.8 million bond that matured April 15.
The Chinese lenders bought the $240 million of convertible preferred shares in LDK Silicon in June 2011, and LDK agreed to complete an IPO of the unit within two years.
“They won’t IPO by June 3, given the state of the market,” Zino said. The price of polysilicon, the main raw material in solar cells, fell 69 percent to $16.98 a kilogram this month from June 2011.
LDK had $2.6 billion in debt as of Dec. 31, the most of any company in the 15-member Bloomberg Industries Global Large Solar Energy index after GCL-Poly Energy Holdings Ltd. (3800) Defaulting on any of its “current or future debt obligations” may trigger an accelerated-repayment clause in a $275 million bond that matures in February.
The terms may also bar LDK from taking on additional liabilities, which would complicate any efforts to restructure its debt and “raise substantial doubt as to our ability to continue as a going concern,” according to its May 20 annual report.
LDK hired hired Citigroup Inc. in December to help renegotiate its liabilities. In January, China Development Bank approved a 440 million yuan ($71.7 million) loan to LDK to upgrade a polysilicon plant.
Cheng Kin Ming’s Fulai Investments Ltd. increased its stake in the company to 25 percent in April as the company sold shares to pay down debt.
“It seems like the Chinese lenders are still backing the company,” said Zino. “They’ll be able to find some sort of an agreement.”
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