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Chinese renewable companies slow to tap $47 billion credit

Chinese wind- and solar-energy companies have left untapped most of the $47 billion in credit lines made available by the government since 2010, undermining arguments that U.S. rivals are facing unfair competition funded by cheap loans.

China Development Bank Corp., the biggest lender to solar and wind-energy companies, made the money available to at least 15 companies. Of the $29 billion in credit extended through 2010 to Suntech Power Holdings Co., Yingli Green Energy Holding Co., Trina Solar Ltd. (TSL), JA Solar Holdings Co. and Xinjiang Goldwind Science & Technology Co., only $866 million has been drawn, Bloomberg New Energy Finance said.

U.S. solar manufacturers led by Solarworld AG (SWV) asked the Obama administration to slap duties on Chinese companies, saying their competitors are using low-cost credit from state-run banks to dump solar panels below production costs on Western markets. Three U.S. solar companies including Solyndra LLC collapsed this year due to falling prices for solar cells.

“These credit lines are merely conditional agreements and not concrete loans already drawn by the companies,” said Jessica Ng, a New Energy Finance analyst who wrote the research. “The terms of the credit lines are unclear, and there is little to suggest that such loans were far below market rates.”

The U.S. government on Nov. 9 opened an investigation into anti-dumping allegations against the Chinese companies. Solyndra received a $535 million loan guarantee from the U.S. government before it filed for bankruptcy.

Sparse details

“This is certainly not free money,” Robert Petrina, managing director of Yingli Green Energy Americas, said in an e- mail. Yingli had drawn down 4 percent, or $78 million, of its $5.6 billion “letter of intent” as of June 30, according to Petrina. Further information on how much of the CDB credit lines have been drawn this year is sparse, New Energy Finance said.

Ng said she found anecdotal evidence from a few companies indicating the loans were left largely untouched last year. Goldwind drew 2.9 billion yuan ($457 million) of its loans from the China Development Bank by the end of 2010, and Suntech took $343 million of its facility last year, according to New Energy Finance.

Goldwind was awarded a $6 billion credit line in May 2010, and Suntech a $7.8 billion facility in April of that year, the analyst said. Goldwind USA’s Chief Financial Officer David Halligan said there’s a “misconception” that the loans are “different than any Western lender”.

‘Competitive interest’

“We face the same scrutiny when seeking approval for projects,” Halligan said. “We pay a competitive interest rate.”

Suntech’s loans from the CDB “represents less than 20 percent of our total borrowings,” Rory Macpherson, a spokesman for Suntech, wrote in an e-mail. “The $7.8 billion is part of a framework agreement, similar to a letter of intent, and it is not an approved credit facility”.

Trina took $66.5 million of the $4.7 billion in credit that the bank extended and Yingli had borrowed $70,000 of its $5.6 billion agreement by the end of 2010, according to New Energy Finance. JA Solar in a statement said it didn’t take any of its $4.7 billion credit line.

Market share

China Development Bank, which helps carry out government policies, has drawn increased interest as the wind and solar- cell makers it has funded take market share from higher-priced rivals in the U.S., Germany and Japan. Another study from New Energy Finance today showed China will likely take the lead over Europe in terms of money spent on renewable energy projects, with annual outlays of almost $50 billion by 2014. The U.S. and Canada will reach that level in 2020.

“Given that in the U.S., this cheaper financing is being partly blamed for contributing to the downfall of solar manufacturing, it would be surprising for them that much of the credit lines are untapped”, Lawrence Brader, an analyst at Environmental Investment Services Asia Ltd., said by e-mail.

Most of the 20 loans Ng tracked to solar- and wind-energy companies since 2008 had interest rates of 2.5 percent to 8.5 percent, which depend on the currencies and loan maturities. Solyndra’s loans since 2008 averaged about 6 percent, according to Bloomberg calculations from Treasury filings.

“The complaints by U.S. manufacturers that China’s state- bank credit lines are cheap loans amounting to illegal aid are not necessarily correct,” Ng said.

Dollar loans

The interest rate on Yingli’s loan from the CDB is “in line with both the market rate for U.S. dollar loans, and our weighted average interest rate of 6.44 percent in the second quarter of 2011,” Petrina said by e-mail.

JA Solar’s current interest rates in China for bank term loans are in the range of 6.65 percent and above. That is significantly higher than interest rates available in the U.S.,’’ the company said in a statement via e-mail.

China Development Bank, which doesn´t disclose many of its loans, approved most of the $47 billion in credit lines in 2010 and some in 2011, Ng said in an interview. The credit was earmarked for capacity expansion and overseas business including power generation projects, she said.

Bonds beat loans

Companies may not have drawn much of the facilities because the debt may not have been cheap compared with alternatives, such as bond and stock sales, Ng said.

Charles Yonts, an analyst at CLSA in Hong Kong, said most of the credit used by Chinese solar companies was for manufacturing expansion. Chinese solar companies have to undergo an approval process on a case-by-case basis to access those credit lines, Yonts said by e-mail.

“Each draw-down has to be negotiated separately based on normal market terms,” Yingli’s Petrina said. The agreement with the CDB is not “an open credit line,” JA Solar said.

Bank of China Ltd. (3988) and Agricultural Bank of China Ltd. (601288) also offered credit facilities, and the total funds agreed in principle has alarmed Western policy makers, Ng said.

The U.S. companies that filed that antidumping petition said, “Chinese solar cell and panel producers benefit from an all-encompassing range of illegal subsidies from the Chinese government, including massive cash grants,” according to their complaint.

The petition also cited “significantly discounted raw material inputs, such as polysilicon and aluminum; heavily discounted or free land, power and water; multi-billion-dollar preferential loans and directed credit; extensive tax exemptions, incentives and rebates; export assistance credits; and export insurance at preferential rates.”

Fan the flames

Jifan Gao, chief executive officer of China’s Trina Solar, said this month that Chinese panel makers borrow from state banks at higher interests rates than those Solyndra was charged by the U.S. government for its loan this year.

Solyndra, of Fremont, California, was charged quarterly interest rates of 0.545 percent to 1.731 percent on about $70 million in U.S. government loans made in 2011.

Solyndra was set up to produce cylindrical panels that convert sunlight into electricity using a thin-film technology based on copper-indium-gallium-diselenide. Its choice of a unique thin-film technology contributed to its decline, making it difficult to compete with the Chinese, according to Bloomberg New Energy Finance.

China is likely to take a more cautious view in the coming months supporting its clean technology manufacturers to calm trade tensions, Ng said. Its delay of the official release of its 12th five-year plan for renewable energy may be an example of this “to avoid fanning the flames in light of the U.S. complaint”, Ng said. The plan was due to be published at the end of September 2010, she said.

China is attempting to deal with its own overcapacity problems and will likely consolidate manufacturers so there are “one or two” companies able to produce 5 gigawatts of panels annually by 2015, she said.

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