Chaori to Sell Solar Farms to Repay Bondholders After Default

Shanghai Chaori Solar Energy Science & Technology Co., the first Chinese company to default on corporate bonds onshore, plans to sell assets outside the country to raise cash and repay noteholders.

The manufacturer will seek buyers for solar farms in Greece, Bulgaria, Italy and the U.S., Vice President Liu Tielong said by phone today. Chinese banks that had previously agreed to provide 800 million yuan ($130.3 million ) in loans if the company faced a temporary cash squeeze “have no willingness to lend,” he said.

“Potential buyers aren’t determined yet,” Liu said. “The solar plants are worth more than 1 billion yuan and are more than enough to cover the bond interest.”

The solar-cell maker paid only 4 million yuan of a 89.8 million yuan coupon payment due on March 7 on its 2017 bonds, according to Liu. The failure signals the government may back off its practice of bailing out companies after promising markets a “decisive” role in the allocation of resources.

China Securities Co., which managed the Chaori note sale in 2012, plans to send a notice to bondholders today or tomorrow about convening a meeting, Beijing-based spokeswoman Zhang Jing said by phone today. The meeting date hasn’t been decided and it isn’t clear if most investors are individuals, she said.

Photographer: Brent Lewin/Bloomberg

The Shanghai Chaori Solar Energy Science & Technology Co. website is displayed on an Apple Inc. MacBook Air, back, and Apple Inc. iPhone 5s smartphone in this arranged photograph taken in Hong Kong. Close

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Photographer: Brent Lewin/Bloomberg

The Shanghai Chaori Solar Energy Science & Technology Co. website is displayed on an Apple Inc. MacBook Air, back, and Apple Inc. iPhone 5s smartphone in this arranged photograph taken in Hong Kong.

According to Chaori’s bond prospectus, Guangfa Bank Co.’s Shanghai branch and China Citic Bank Corp. (998)’s Suzhou branch agreed to extend 800 million yuan in loans to the manufacturer if it faced a temporary cash squeeze. Chaori is still talking to lenders for support, Liu said today.

Solar Farms

Chaori Solar sold the five-year notes with a variable annual coupon starting at 8.98 percent, according to data compiled by Bloomberg.

The notes yielded 22 percent before trade was halted on July 8, exchange data show. The bonds were downgraded to CCC from BBB+ by Pengyuan Credit Rating Co. in May, Nomura Holdings Inc. said in a March 5 report.

The company ran into trouble because it expanded into building solar farms to produce power rather than just manufacturing panels, which is much cheaper, according to Wang Xiaoting, a Beijing-based analyst at Bloomberg New Energy Finance. The farms earmarked for sale could indeed bring in 1 billion yuan if they are fully commissioned, Wang said by phone today.

Chaori’s default has no “systemic implications” even as more failures may follow “in line with normal cyclical volatility,” analysts including Kenneth Ho at Goldman Sachs Group Inc. wrote in a March 8 report.

Still, the incident may cause a gradual slowdown in Chinese high-yield bond issuance and some tightening in the nation’s total social financing, the analysts said.

“Allowing defaults is an important part of installing a better risk culture and is a step toward tackling China’s credit issues,” they said. It will be more important to watch the ensuing default resolution process, restructuring and bankruptcy procedures, the analysts wrote.

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at fshen11@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at fshen11@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan, Nicholas Wadhams

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