Solar Overcapacity’s Latest Victim — Company That Stopped Running Eight Years Ago

GD Power Development Co. Ltd. said its unit that makes the main ingredient for solar cells has filed for bankruptcy, becoming one of the last victims in a years-long weed-out of smaller makers of polysilicon.

The case saw GD’s unit whose name translates to GD Ningxia Solar Power Co. Ltd. forced into bankruptcy by a local court in Northwest China’s Ningxia Hui autonomous region, according to a Tuesday filing (link in Chinese) to the Shanghai Stock Exchange.

A court in the city of Shizuishan took the step after determining GD Ningxia Solar lacked the ability to meet its financial obligations, even though the company and its investors had failed to apply for reorganization or offer other solutions to address the problem. Therefore the case met requirements for a bankruptcy declaration, the court added.

Founded in 2008 with total investment of 5 billion yuan ($723 million), GD Ningxia Solar is primarily engaged in the manufacture and sale of polysilicon used to make solar cells.

The company was initially hoping to take advantage of upwardly trending polysilicon prices as solar power gained traction at that time. Those prices would reach as high as $400 per kilogram at the height of a boom, said a solar analyst at a major Western research house, speaking on condition of anonymity due to company policy. But then demand and prices fell sharply during the 2011 debt crisis in Europe, which had been one of the main markets for solar cells.

“A lot of these second- and third-tier makers aggressively expanded in 2010 or 2011 because the price was very high,” he said. “But suddenly the price dropped in 2012 and 2013 to the $20 or $30 level. They have been waiting to see if price can recover to higher levels, but it didn’t happen.”

GD Ningxia Solar halted production around the time that prices plunged, and hasn’t resumed since. Its machinery has become outdated by now, making it more unlikely it could find a buyer with each passing year, despite the parent company’s previous efforts.

The company’s financial reports show it posted losses of 202 million yuan and nearly 70 million yuan in the 2018 and the first half of 2019, respectively. It had total debt obligations worth 2.64 billion yuan as of August last year. Midway through last year the company had 722 million yuan worth of assets, and negative owner’s equity of 1.9 billion yuan. It employed just 16 workers as of that time.

The state-owned parent may have been reluctant to put GD Ningxia Solar into bankruptcy for so long on hopes that a “white knight” might come to take the asset off its hands, said the analyst. Such actions sometimes occur in China’s state-owned sector, often when local governments engineer the purchase of struggling state-owned assets by other state-owned entities to avoid forcing creditors of the former group to suffer large losses.

“Normally state-owned enterprises don’t want to announce any bankruptcies as long as they can try to sell something,” he said.

The move marked the second bankruptcy in the last three months for a unit of the GD parent company. In May one of its coal-fired power-producing units in Southwest China’s Yunnan province was also put into bankruptcy. In both instances, the bankrupt units were marginal players engaged in industries undergoing consolidation.

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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