Solar Industry And Burden Of Debt, Q1 2012 Edition

by: Robert Dydo

Difficult market conditions continue to impact financial management of solar companies. There is an expectation today that a solar business should be able to minimize its losses, while preserving cash accounts and keeping debt levels flat - or perhaps reduce them if necessary. In some cases the business should at least slow down the rate of increasing debt through a reduction in capital expenditures.

In order to preserve cash, companies are most likely to extend terms on accounts payable, reduce cash deposits or prepayments with suppliers, and reduce notes payable, which are a form of letters of credit, used frequently to pay or secure down payment with the vendors.

In the case of debt, companies may swap interest-bearing short-term obligations for long-term arrangements using the opportunity to lower interest rates.

In the last quarter SPVI has tracked the 20 largest global solar manufacturers. Since the last installment Q-Cells has filed for insolvency, so it will no longer be part of this comparison. Another company, GCL-Poly, follows Hong Kong Exchange financial requirements; therefore the next detailed financial announcement will be made only after the second quarter.


Based on the remaining 18 companies, subsequent changes have transpired since our last look in Q4. As a peer group, the debt level increased by $150M and the combined debt level stands at $19B. The largest debt holder is LDK Solar (NYSE:LDK) with $3.4B, followed by Yingli Solar (NYSE:YGE) with $2.32B and Suntech (NYSE:STP) with $2.26B. The best debt reduction in the period was executed by SunPower (NASDAQ:SPWR) with a 28.9% reduction, followed by Taiwanese Gintech with 18% and Green Tech Energy with 16%. The highest debt increases were from First Solar (NASDAQ:FSLR) with 30% and Canadian Solar (NASDAQ:CSIQ) with 14%.

In the area of best cash increase for the period was Canadian Solar with 19% (obviously through borrowing), Norwegian REC by 15% and First Solar by 1%. The biggest cash spenders were Green Tech Energy 54.6%, followed by SunPower with 54.2% and Gintech with 35%, all three paying off debt. The total cash spent for the peer group in Q1 equalled $1B. Sunpower led with $399M spent paying off $281M of debt. Yingli Green spent $217M, but added $60M of debt. Trina Solar (NYSE:TSL) spent $148M and added $100M in debt. The best execution in the quarter belonged to REC, adding $44M in cash and reducing debt levels by $1M. The worst would be Yingli, spending $217M and adding $60M in debt.

From the perspective of operating expenses, we will concentrate on the US-listed Chinese companies. In absolute dollars the worst performance in Q1 belonged to Suntech where the company increased expenses by $7M. On a percentage basis, Renesola (NYSE:SOL) was the worst with $4.6M, an 18% increase. The best reductions in operating expenses were recorded by LDK Solar, JA Solar (NASDAQ:JASO) and Hanwha Solar One (HSOL).

On the value of inventory, the highest increase in percentage was recorded by JA Solar, with a dollar value of $73M and a percentage increase of 63.1%. The largest absolute dollar value increase was made by Trina with $101M. The best reduction in inventory value was made by LDK (provisions for inventory taken in the period) with $99M and Suntech with $8M; however, LDK holds the highest inventory among solar companies, valued at $555M.

In the combination of Opex, interest payment and gross margin improvements per watt sold, Hanwha SolarOne improved those costs by 62% from Q1, followed by Yingli at 61% and JA Solar at 52%. The closest to break-even on revenue per watt was Canadian Solar with a 7-cent gap, Yingli Green Energy with 9 cents and Renesola with 10 cents. The worst performer in this category was Suntech, as its gap had increased by 129% in comparison to Q4, 2011.

The best gross margin among the 18 members of the peer group in Q1 was achieved by REC with 26.5%, followed by Conergy (OTC:CEYHF) at 17% and First Solar at 15.5%. The worst gross margins were recorded by LDK Solar at a negative 65%, Neo Solar Power at negative 52%.

The largest financial pressure due to lack of liquidity among the peer group includes Jinko Solar (NYSE:JKS), LDK Solar, SolarWorld (OTCPK:SRWRY) and REC. The largest financial pressure due to short-term debt: LDK Solar at $2.2B, Suntech at $1.5B and Yingli at $1.2B. The largest pressure due to current bond maturity in the next 12 months includes Suntech at $511M and Sunpower at $426M.

The best operational data for Q1, all-in module costs (internal best), comes from Canadian Solar at $0.73 and Renesola at $0.74. Suntech had the highest Q1 module ASP per watt shipped at $1.04, while LDK Solar was the lowest with $0.80. The lowest purchased polysilicon cost was $0.16 per watt at Hanwha and Jinko. The largest amount of module shipments belonged to Yingli with 534MW. Total sales made in Q1 by the peer group were $4.7B, with Yingli taking 10.6% ($499M), First Solar 10.5% ($497M), and SunPower 10.5% ($494M). The lowest revenue generated was by wafer maker Green Tech Energy at $94M and cell manufacturer Neo Solar Power at $106M.

Disclosure: I am long TSL, YGE.