China’s largest solar manufacturing companies are shopping for overseas assets—but their heavy debt burdens could make them acquisition targets at home. The global solar manufacturing industry is awash with excess capacity, making it ripe for consolidation. That includes China, where the biggest companies piled up debt as they expanded. The nation’s 10 largest listed solar companies, which include Suntech Power Holdings Co. STP 0.00%Yingli Green Energy Holding Co. YGE +2.59%and LDK Solar Co. LDK -1.22%, had combined debt of $17.5 billion at the end of the first quarter of last year and had accumulated $4 billion of free cash flow losses, according to U.S.-based investment bank Maxim Group. The push for domestic deal-making is there; the State Council, China’s cabinet, said in December it would overhaul the domestic industry by encouraging mergers and acquisitions and using “market pressure mechanisms” to eliminate excess capacity, without being more specific. Still, overseas assets may prove strategically irresistible, said Shyam Mehta, an analyst at clean-energy research firm GTM Research. The U.S. last year imposed steep tariffs on Chinese-made solar panels, while the European Union has launched antidumping and antisubsidy investigations against Chinese companies, which dominate global production of solar cells, the key component in solar panels. “Acquiring a European firm would provide a Chinese company with a tariff-free route to Europe,” Mr. Mehta said. “While the big Chinese firms are in terrible shape from a balance-sheet perspective, I can easily see a lender like the [state-controlled] China Development Bank providing them with more debt for a strategic acquisition.” CDB was among the lenders that helped finance the growth of the domestic solar sector, lending companies billions of dollars to expand capacity. More recently JinkoSolar Holding Co. JKS +7.68%, a leading Chinese producer of solar products, said in December that its Swiss subsidiary had entered a “strategic cooperation agreement” with the CDB that included a $1 billion line of credit to expand its overseas presence, including through mergers and acquisitions. The CDB didn’t answer an email seeking comment. One Chinese company has already picked up struggling European and U.S. solar manufacturers. Hanergy Group, which is primarily a hydroelectric-power operator, last year bought Solibro, a unit of Germany’s insolvent Q-Cells SE QCE.FF -2.38%, for just over $500 million. Earlier this year, it purchased U.S. company MiaSole, another solar-cell manufacturer. Hanergy officials didn’t disclose the value of the MiaSole deal but described it as far short of MiaSole’s peak valuation of $1.2 billion in 2008. Whatever the attraction of overseas assets, not all the major Chinese players are expected to survive as the government pushes forward with consolidation at home. That means Yingli and Suntech, for example, aren’t just potential buyers of distressed Western solar companies but could also be targeted by other Chinese companies because of their weak balance sheets, GTM Research’s Mr. Mehta said in a report last year. Suntech declined to comment, while emails to Yingli and LDK, which has disclosed concerns about liquidity, weren’t answered. “Most of them are in dire need of recapitalization, and not all such firms are likely to be the beneficiaries of continuing largess from government-owned lenders,” Mr. Mehta said in the report. http://blogs.wsj.com/deals/2013/02/05/...solar-firms/?mod=MarketsMain |
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