LDK Solar’s stock seems to be on the road to recovery after having fallen to a low of $2.70 in October as solar companies in the US filed for bankruptcy and LDK was seen as a prime candidate for restructuring because of its debt load.
Since then, however, the company managed to tap the Chinese debt market (likely with an implicit government backstop) to replace short-term debt with longer duration bonds and its stock has almost doubled. Analysts expect that the Chinese government will continue to support LDK because of its scale in the country.
We have a $5 price estimate for LDK Solar, which is slightly above the current market price. The Chinese Government has also offered credit facilities for other firms such as Suntech Power.
Government support
The Chinese solar industry has received considerable support from the government, including massive credit line support from the China Development Bank. Despite LDK’s high debt level, it has not yet tapped into the credit line extended to it, which has allayed fears that the company will default on its obligations.
One of the reasons for the government support is that LDK is among the largest solar firms in the country, employing around 28,000 people which makes it the largest employer among Chinese solar companies. Analysts view LDK’s vast vertically integrated operations as a “too big to fail” situation for the Chinese government.
Some observers have also commented that the Chinese government could step in to protect the polysilicon industry and force consolidation by making smaller companies integrate and exploit synergies. The magnitude of LDK’s operations make it likely that the government will continue to support the company through the ongoing shakeout.
