Local Gov't Struggles with Solar Manufacturer's Debt
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(Beijing) – Led by China's policy bank, creditors of Jiangxi LDK Solar are in talks with the company's host city government over loan payback.
The local government on July 12 set a provision of 2 billion yuan from the city budget to cover part of the company's financial gap, and officials are scrambling to sell stakes of the troubled company to local state-owned enterprises.
The Xinyu government, in central China's Jiangxi Province, has been in talks with various companies to have them buy indebted, New York-listed Jiangxi LDK Solar Hi-Tech Co. Ltd., but there has been no interest, a source at a state-owned commercial bank said.
LDK has borrowed more than 30 billion yuan from domestic banks, including China Development Bank (CDB), Bank of China, Merchants Bank and Agricultural Bank.
"Regarding the debt issue of LDK Solar, China Development Bank is discussing with both Xinyu and the Jiangxi provincial government to try to find a solution," the bank source said. "So far no practical plan has been reached."
On July 12, the Xinyu city congress approved a proposal to incorporate 500 million yuan worth of loans borrowed by LDK Solar from Huarong International Trust Co., which matured June 29, into its annual budget.
Huarong Trust is only a start. Ten financial institutions issued loans to LDK Solar. CDB is the lead lender, with 3.4 billion yuan in loans.
The Jiangxi government has allotted 2 billion yuan to banks to roll over loans and required bank branches not to demand for payback for now. Bank sources said the measure can't last long.
"The most feasible solution is an equity swap," a source in the solar industry said. "It is possibly that state-owned firms that have already entered the solar business, such as China National Materials Group Corp. or China Energy Conservation and Environmental Protection Group, could buy LDK's stake."
Earlier media reports said state-owned companies were in talks with LDK Solar. But the nationalization of the company could be difficult given the sluggish solar industry and the company's huge debt. Jiangxi Copper Corp., one of the province's largest SOEs, rejected an offer from the Xinyu government to buy into LDK.
The entire solar industry has been in dire straits, Peng Xiaofeng, chairman and chief executive officer of LDK Solar said on June 26. The continued overcapacity and shrinking product prices have impacted profit margins.
LDK Solar has total assets of 33.7 billion yuan, its first quarter financial report said. Its debt ratio increased from 80.6 percent in the third quarter of last year to 87.1 percent in the first three months of this year.
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