LDK Solar Co. Ltd. released the 4Q12 financial report on April 18th. The financial report showed that LDK’s utilization rate was still low and the amount of shipments continued to drop in 4Q. Their revenue was approximately 136 million USD, a 53.4% decrease compared to last quarter and a 67.7% drop compared with 4Q11. The gross margin in 4Q12was negative 60.5%. The company’s operating margin has dipped sharply to negative 300.8% due to inventory write-down, impairment loss, and a large amount of management expenses. Their quarter net loss was up to 517 million USD. However, what surprised the market the most was the balance sheet that suggested insolvency.
Two days before the release of the financial report, LDK announced that due to the temporary cash-flow shortage, they are unable to repay the convertible note of approximately 24 million USD. LDK indicated that they have already reached an agreement with two bondholders and that they can defer a payment of 16.5 million. Even though LDK has recently signed a purchase agreement to obtain approximately 25 million in funds, the company’s tight cash flow still suggested that LDK may face bankruptcy. If we take a closer look at the financial report, we would see that LDK’s current ratio is 0.38; this means that for every $1 of current liabilities, only $0.38 of current assets is reimbursable. The debt to assetratio increased from last quarter’s 0.94 to 1.03, and their total liabilities surpassed total assets, with short-term liabilities accounting for 40 percent of the total liabilities(up to 2.09 billionUSD). With only $98 million of cash and cash equivalents and $167 million of pledged bank deposits, they may not be able to repay their debt in the short term.
LDK was not the only company that suffered huge debt; most of China’s first-tier solar energy industries have also faced this predicament. Canadian Solar, Yingli Solar, Jinko, and ReneSola all have a debt ratio of over 0.8 (Suntech also announced in their 2012 financial report that their Q1 debt to asset ratio was 0.82). When the solar power industry was flourishing, many companies with government support conducted large-scale expansions; during the market downturn, these huge investments have become heavy burdens. Today, scale economy is not the key to success in the solar market. Instead, how to improve the company’s financial structure has become the common issue among Chinese solar energy manufacturers.
Facing the market downturn and huge debt, LDK must take serious measures. In addition to working with stakeholders and government agencies, adjusting their business strategy and negotiating with debtors to extend the repayment period, LDK must start expanding business in emerging markets. LDK currently signed a supply module contract with Thai company EA Solar Nakornsawan Co., Ltd. At the present, LDK still has a capacity of 17, 000 tons of polysilicon, 4.3GW silicon wafers, and 1.5GW modules. It is expected that their operation center will be mostly based on silicon-wafers and modules, and the utilization rate will also rise from the current 20%. In conclusion, 2013 will still be a year of challenges for LDK, and whether the self-sustaining measures are able to save the company from the financial crises is to be determined by the market.