Suntech Bond Is a ‘Buy’ as China Rescues Solar Power, Axiom Says
Suntech Power Holdings Co.’s 2013 convertible bond, trading at about 61 cents on the dollar, was recommended by Axiom Capital Management Inc. on the assumption China won’t let the biggest producer of solar panels default.
Suntech, which probably lost about $403 million last year according to analyst estimates, burned through $488 million of cash and cash equivalents in 12 months to leave it with $458.4 million at the end of the third quarter. The Jiangsu-based company, which cut panel prices to shift its inventory, has to repay the $575 million bond in March 2013.
“The Chinese government is willing effectively to bail these companies out,” Gordon Johnson, an analyst at Axiom in New York, said today in a telephone interview. “I don’t think any of those guys will be allowed to default.”
Chinese solar-panel producers expanded output last year, driving prices down by 41 percent and forcing U.S. and European competitors such as Solyndra LLC and Solon SE into bankruptcy. As Germany, the biggest market for the equipment, curtails subsidies for photovoltaic power, the oversupply is starting to strain Chinese companies as well.
LDK Solar Co., the No. 2 panel maker, probably lost about $126 million last year, after a profit of $291 million in 2010, according to a Bloomberg survey of 13 analysts. Canadian Solar Inc. (CSIQ) and Trina Solar Ltd., China’s third- and fourth-biggest panel producers, may also post a loss, analyst estimates show.
LDK last month sold 500 million yuan ($79 million) of three-year domestic bonds to yield about 6.8 percent, when its international bonds of the same maturity yielded 49.5 percent.
“The fact that they were able to issue that debt in China has the government painted all over it,” Johnson said. “Suntech, if they deem to, will be able to draw down on a loan from the China Development Bank or issue debt in China at a very low rate.”
The remarks follow comments by German Environment Minister Norbert Roettgen last week, who said China’s support for the solar industry may be aimed at creating a monopoly, even as Chinese competitors have contested the allegations.
“We have to make it clear that the strength of China-originated solar companies is not about subsidies or cheap loans from the government,” Jifan Gao, chief executive officer of Trina Solar, said last year. “We don’t have any advantages in this area.”
Jinko, JA Solar
The yield on LDK’s 2014 bonds has slipped to 42 percent, while the 2016 convertible bonds issued by JinkoSolar Holding Co., which also plans to sell debt in China this year, are yielding about 25 percent. JA Solar Holdings Co., the biggest solar-cell maker, sees its 2013 convertible yielding 21 percent.
Each $1,000 of the Suntech convertibles can be exchanged for 24.3 of its American depositary shares, giving them an initial conversion price of $41.13, according to a June 2008 prospectus. The stock has lost about 92 percent since then to close at $3.24 in New York on Jan. 20.
The price of the convertibles fell to as little as 35 cents on the dollar in September and traded at 61 cents yesterday, according to data compiled by Bloomberg.
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