Chinese SOE May Take an Investment in LDK Solar

Solarzoom reports that the local government is negotiating with the company for a potential money injection. The investment will be made using a Jiangxi-owned enterprise in the transaction. 

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Although spokesperson for LDK Solar (NYSE: LDK) Li Longji said that there is no possibility that LDK will be nationalized, and although all the enterprises that are rumored to be trying to take over LDK also negated the possibility, the prospect still exits as a form of investment.

A few weeks ago the government of Xinyu City, where LDK is based, passed a proposal to pay 500M RMB through an “LDK stable development fund” to cover for the shortfall in LDK’s obligations.  Despite the city’s profit being only 850M RMB last year, Xinyu had committed the money to LDK. This generous move caused huge controversy and divided public opinion. Since LDK is a leading member of the PV industry’s supply chain in Jiangxi, the company in recent years brought jobs and tax revenue to the province. It is hard for the local government to let go of this investment in the company and the relationships over the years. So, the rumor that LDK will be acquired by a national company has spread like wildfire.

It has been reported that the talks took place among four potential groups interested in investment or an acquisition of LDK. These four groups are: CECEP Group, CNBM Group, Sinoma Group, and PingMei ShenMa Group. Three of them are central government-owned enterprises.  Because LDK is a foreign- incorporated enterprise, listed on the US exchange, there are many obstacles in the way for a central SOE (state-owned-enterprise) to acquire LDK. Moreover, bad debts and cash flow also make the potential acquisition unattractive. In addition, Solarzoom has learned that LDK Solar is running only a single factory at this point, since full utilization would only add to mounting losses.

Under those circumstances, Solarzoom reports that the local government is negotiating with the company for a potential money injection. The investment will be made using a Jiangxi-owned enterprise in the transaction. A few days ago, about 300M Yuan worth of stock of the Shanghai Stock Exchange- listed enterprise Jiangxi Copper Corporation were disposed of by its biggest stock holder, the Jiangxi Copper Corporation Group. The same sources report the sale of the stock is a preparation to invest in LDK Solar.

Another government intervention may be extended to world-leading solar module maker Suntech Power Holdings Co., Ltd. (ADR) (NYSE: STP), which currently is entangled in the financial scandal. The company reported last week that it was given “non-existing” German bonds as collateral against payment guarantees the company made under a finance facility provided by China Development Bank Corp.   Solarzoom sources report that the Jiangsu government will give Suntech necessary assistance to provide loan facilities, to be potentially used to pay off $500M of convertible bonds due in March 2013. 

 

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