Caixin
Oct 11, 2016 06:29 PM
BUSINESS & TECH

Solar Panel Maker LDK Bankruptcy Approved; Creditors Take Huge Losses

(Beijing) — Creditors of bankrupt solar panel maker LDK Solar will lose up to 80 percent of their money, or as much as 20 billion yuan ($3 billion), under a reorganization plan that a court in Jiangxi province recently approved for the company.

The liquidation will mark the end of a years-long saga that saw LDK and many of its rivals post big losses after a major buildup of China's solar-panel sector, fueled by generous subsidies from Beijing and local governments. Such incentive programs are common for industries targeted for development by Beijing, and often lead to local and even global gluts and huge losses for sectors that make products as diverse as steel and electric vehicles.

The reorganization affects three of LDK's main subsidiaries — the manufacture of solar cells, solar wafers, and the polysilicon that is the main ingredient used to make such products. The plan, which was mainly based on debt-for-equity swaps, was confirmed by the court at the end of September, LDK's creditors confirmed with Caixin on Monday.

Under the plan, providers of unsecured loans to the companies will get back 3.4 to 11.5 percent of the money they were owed. Sources said that bank creditors held 27 billion yuan worth of debt, and nearly 80 percent of that was unsecured, meaning bank creditors could lose up to 20 billion yuan.

The case shows that local governments won't necessarily bail out failing companies like LDK, and instead may force banks to swallow the losses. But many banks in China are closely tied to local governments who often use them as policy tools, meaning those lenders will now have fewer resources to spend on projects favored by those same local officials.

A source close to the Jiangxi provincial government told Caixin that the government cannot afford to rescue solar companies, and therefore that task will have to be shouldered by their creditors.

The three LDK subsidiaries formally entered bankruptcy late last year, kicking off a process that was dominated by government officials.

Such government involvement is necessary because China has very little experience with market-style bankruptcies due to its past, when all companies were state-owned and didn't need to make profits. Such Western-style bankruptcy reorganizations, which often see creditors take big losses, have been relatively rare to date but could become more common as China's economy slows and companies struggle.

Contact reporter Dong Tongjian (tongjiandong@caixin.com); editor Doug Young (dougyoung@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY