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China Picking Winners in Solar Industry With Backing for Yingli

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  • Government steps up effort to spur mergers, acquisitions
  • Yingli brand and reach make it more likely to survive shakeout

China is starting to pick the companies most likely to survive a shakeout in the solar industry, negotiating loans for the struggling panel maker Yingli Green Energy Holding Co.

The action by the state-owned China Development Bank Corp. is part of the nation’s efforts to spur consolidation among photovoltaic makers through mergers and restructuring, said Meng Xiangan, vice chairman of the China Renewable Energy Society. Meng’s organization serves as a conduit between government and the industry.

With a globally recognized brand and a position as the biggest solar supplier until 2014, Yingli is in better shape for a rescue than competitors such as Suntech Power Holdings Co. and LDK Solar Co. that were allowed to go under, Meng said. Yingli hasn’t reported a profit since the second quarter of 2011 and is struggling to refinance $1.9 billion in debt built up during an expansion binge.

"Yingli isn’t a small company by any measure,” Meng said. “It has a large presence, it’s competitive, and it holds key technologies. So there’s the possibility it could recover with the help of the state.”

Perhaps no other company better illustrates the ups and downs of the solar industry than Yingli. It usurped Suntech as the biggest shipper of solar panels early this decade then was overtaken by Trina Solar Ltd. In May, it expressed “substantial doubt” about whether it can remain afloat because of its debt. Its American Depository Receipts lost 81 percent of their value in 2015 and are down another 8 percent since the beginning of this year.

Financial Help

The China Development Bank and the government in the city of Baoding, where Yingli is based, are about to lend about 3.3 billion yuan ($505 million) to Yingli, marking the first financial help by a state policy bank to a struggling solar panel maker, a person familiar with the matter said in the middle of February. The person asked not to be identified because the discussions remain private.

Two calls to the Baoding government’s news department went unanswered. China Development Bank didn’t respond to an e-mail seeking comment. Yingli’s news department declined to comment.

Solar power is one of the clean-energy technologies China’s government is backing as it pushes to cut fossil-fuel pollution that has blanketed Beijing and other leading cities with thick smog. The government has said it wants to have several solar producers that can manufacture on a large scale, rather than hundreds of smaller players.

“China has shown several times in the past that it is willing to choose winners and support industry consolidation," said Ash Sharma, a senior research director at Englewood, Colorado-based IHS Inc.

Yingli was one of dozens of large Chinese companies that flooded into the solar business in the past decade. The influx has helped push panel prices down more than 60 percent since 2010. It also led to a global oversupply that pushed at least 30 companies into bankruptcy. While the survivors have mostly returned to profitability, Yingli has been hamstrung by debt.

Between 2013 and the first quarter of 2015, more than half of Yingli’s net losses were interest expenses paid on the debt it raised for expansion, according to Bloomberg New Energy Finance data.

Market Value

The company, which sponsored the World Cup twice to market its brand, was the world’s biggest panel company by shipments in 2013 and supplied 8 percent of the solar market that year. It now has a market value of just $76 million, while it owed about $1.9 billion in total debt as of the end of the third quarter in 2015.

Unit Baoding Tianwei Yingli New Energy Co. still owed about 350 million yuan on 1 billion yuan of notes that were due on Oct. 13, Yingli Chief Financial Officer Wang Yiyu said last month. The company is in discussions with bondholders of 1.4 billion yuan of notes due in May, he said.

Support from the China Development Bank would “demonstrate the Chinese government’s faith in the longer term growth and potential of the solar industry," said Sharma. “It seems the local government would favor providing a loan to a company that would ensure employment for local citizens.”

One possibility is that the move by the China Development Bank is designed to help Yingli replace old debts with new lower-cost loans, said Peng Peng, a Beijing-based analyst at the Chinese Renewable Energy Industries Association.

Continued growth in solar will require more manufacturing capacity and further investment from those that can "weather the storm" of declining prices for solar cells Sharma said.

However, government support is a "double-edged sword," according to Hu Xingdou, an economics professor at the Beijing Institute of Technology.

“It can not only promote economic development but also lead to impediments," said Hu, suggesting that backing a financially weak company can distort competition.

— With assistance by Feifei Shen

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