Shacky financials cloud solar sector

Shanghai Chaori Solar Energy Science & Technology Co (Chaori), a Shenzhen-listed solar equipment company, admitted in a filing to the Shenzhen Stock Exchange (SZSE) Friday that it has fallen into hard financial straits amid mounting accounts receivable and unpaid bank debts.

Specifically, Chaori was burdened with 380 million yuan ($60.99 million) in overdue bank loans as of Friday and had been sued by three suppliers for failing to pay bills totaling 90 million yuan, the statement explained. Meanwhile, its accounts receivable stacked up to a combined 3.342 billion yuan at the end of the third quarter, accounting for 42.3 percent of its total assets.

Chaori is just one of the Chinese solar energy companies which have encountered financial trouble in recent months as undischarged debts mount and cash inflows diminish across the industry. In July, for example, LDK Solar Company, a US-listed Chinese solar enterprise, announced that it could not repay over 500 million yuan in debts and was teetering on the verge of bankruptcy.

A recent report from the Southern Metropolis Daily estimated that the debts held by China's top 10 solar companies amount to over 110 billion yuan. Meanwhile, the total accounts receivable of 41 mainland-listed solar companies reached 31.6 billion yuan by the end of the third quarter, up 30 percent year-on-year; while their profits slid 89 percent year-on-year to 600 million yuan during the same period.

"These high accounts receivable will likely become bad debt as the solar industry weakens, which may lead to a wave of bankruptcies across the industry," Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times.

"The situation could get worse this year if the European Union, one of the biggest markets for Chinese solar panels, starts to levy anti-dumping and anti-subsidy taxes on solar panels imported from the country," Lin said.

As the industry loses momentum, some experts and solar enterprises have argued for government intervention in order to protect investors and creditors. For instance, in the case of Chaori, the company will likely default on the 89.8 million yuan interest payment it is scheduled to make on March 7 this year to investors who bought into the 1-billion-yuan bond the company issued last March.

Lin, however, voiced opposition to government protection.

"The best thing for the government to do now is to stimulate demand for solar panels through subsidies, for example," said Lin.