Mar 10, 2014

    Rough times for Chinese solar players

    THE woes of Chinese solar players, as exemplified by the domestic bond default by Shanghai Chaori Solar Energy on Friday, are not unfamiliar to the Singapore market, where another solar player recently had the trading of its American depositary receipts (ADRs) suspended.

    Wuxi-based Suntech Power, once the world's largest supplier of solar panels, trades ADRs here and in the United States. It has begun restructuring under Chapter 15 of the US bankruptcy code, following a default of US-denominated convertible bonds worth US$541 million (S$686 million).

    Being under Chapter 15 allows a company to stay actions brought by creditors in the US while it undergoes restructuring by provisional liquidators appointed by the Grand Court of the Cayman Islands.

    Chaori failed to pay the full interest on its bonds. It said on Tuesday that it would be able to pay only four million yuan (S$828,400) of an 89.8 million yuan coupon due on Friday that week.

    Suntech's larger rival, Trina Solar, also trades ADRs here and in the US. Suntech and Trina are among nearly 20 Chinese companies that trade ADRs here, and that the Singapore Exchange (SGX) has brought to listing on its GlobalQuote board since 2010.

    The risks associated with buying into ADRs of Chinese companies are no different from those associated with investing directly in their shares; however, ADR investors are also exposed to exchange-rate risks, said Mr Wong Sui Jau, general manager of online unit-trust distributor Fundsupermart.

    Analysts say the likelihood of a default by Trina is lower, given its strong cash hoard of $619.2 million as at the end of last year. Still, its high debt to asset ratio of 60 per cent remains worrying, said Mr Roger Tan, chief executive of Voyage Research, who noted that short-term debts made up a large proportion and that the group was seeing significant negative cash flow from operations.

    "However, the company's losses have been shrinking in the past few quarters. If no default happens, it might be able to show a stronger performance ahead," he said.

    Trina, which has sought to diversify its shipments beyond the traditional markets of the US and Europe, shrank its net loss by 70.8 per cent for fiscal 2013 to US$77.9 million. Deutsche Bank and Nomura reiterated their "buy" calls on Trina after it posted the results.

    China's solar industry has been plagued by debt and overcapacity. Global solar demand has failed to keep pace with expansion, and exporters of solar panels face hefty fines in the US and Europe under anti-dumping rules.

    The Chinese Ministry of Industry and Information Technology said the aggregate debt of the country's 10 largest photovoltaic (PV) companies has ballooned to more than 100 billion yuan.

    With China expected to roll back funding for unprofitable solar panel makers, there could be more defaults or consolidations ahead.

    Trina, which returned to the black for the third quarter of last year, bought a majority stake last month in solar cell producer Hongyuan PV Science and Technology.

    Meanwhile, Suntech's main unit, which was pulled into bankruptcy proceedings by Chinese banks after missing a bond payment in March last year, was acquired by Shunfeng Photovoltaic International for three billion yuan.

    In Singapore, exposure to risks associated with these companies is likely to be confined to the small pool of investors holding their ADRs. Only 200 Suntech ADRs changed hands here at the last available trade on May 18, 2012, after prices nosedived from nearly US$9 per ADR in March 2012 to US$2.12 within two months.

    The ADRs quoted on SGX GlobalQuote allow investors to trade the securities, which are fully fungible with the US-listed ADRs, during the Asian trading day. But interest in these ADRs has not risen among retail investors here.