Shriveling Yingli Fends Off Bond Holders

| About: Yingli Green (YGE)

Bottom line: Yingli is likely to get sold or announce a major government-led restructuring, which could include bankruptcy, before a new round of 1.4 billion yuan in bonds comes due next month.

In what looks like a case of deja vu, fast-shrinking solar panel maker Yingli (NYSE:YGE) is in the headlines again as it looks set to default on 1.4 billion yuan ($220 million) worth of bonds set to come due next month. The default would be Yingli's second within a year, after it failed to pay off part of another big bond that matured last October.

Yingli is still working to repay the remaining debt from that earlier bond, which amounts to another 1 billion yuan. That means that Yingli now needs to find some $375 million in funds to repay all of its maturing debt by the time the new round of 1.4 billion yuan in medium-term notes come due on May 12. That looks all but impossible for a company that's bleeding money, which resulted in a $500 million net loss during its latest reporting quarter.

Despite the latest looming crisis, shares of Yingli, once China's biggest solar panel maker, were only down 0.9 percent in the latest trading session in New York. But there's not much more downward space for the company's stock to fall, since at its current level Yingli is only worth $83 million.

Investors' lack of panic at the latest looming crisis could mean several things. Most likely many serious investors have already given up on Yingli, and the only people left are simply day traders looking for big swings in the stock to make some quick profits. Some more serious investors may be waiting for another government bailout like the one that allowed Yingli to repay 70 percent of the bond that came due last October. (previous post)

One other possibility that looks increasingly likely is that Yingli's hometown government and biggest backer, the industrial city of Baoding, may finally be tiring of bailing out this struggling company and want to merge it with a stronger rival. If that occurs, I expect the company could sell for even less than its current market value. Or Baoding could even let Yingli go bankrupt first, making its New York-traded stock worthless.

According to its latest announcement, Yingli says it held 2 meetings on March 28 with holders of its bonds set to come due on May 12, as well as holders of 30 percent of its bonds that came due last October but still remain unpaid. (company announcement; English article)

'Very Difficult' Debt

Yingli told holders of the notes coming due next month that it would be "very difficult" to repay the money and proposed a 2-3 year extension on the repayment. At the other meeting, holders of the 30 percent of bonds that came due last October but have yet to be repaid demanded repayment plus interest. Yingli said it would make its best efforts to repay the money before the May 12 deadline when the new round of bonds matures.

The wording in Yingli's statement hints that the company may be aiming to resolve all of the default issues by May 12, so perhaps everyone is sitting back and waiting to see what happens as that date nears. Frankly speaking, my sense is that the only reason Yingli continues to stay in business now is that the Baoding government doesn't want to deal with a messy situation that might come with a bankruptcy declaration.

Yingli was once a solar superstar, but its fatal flaw was relying too heavily on low prices to gain market share without innovating very much. That strategy worked when the market was booming and prices were high, but has now saddled Yingli with huge losses due to weak pricing for its cheap solar panels. All of that said, it really does seem like the sun set on Yingli about a year or two ago, and it's quite possible we could see a sale or major government-led restructuring announced just before next month's May 12 deadline.

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