LDK Solar fails to close debt gap

LDK Solar narrowed its net loss in the third quarter and crowed about improving PV market conditions, but its modestly improved performance left the company a very long way from being in a position to repay its creditors.

LDK, which posted a net loss of $127m for the third quarter, its 10 straight quarterly deficit, simultaneously announced a follow-on “forbearance agreement” with a majority of holders of the bonds for which the Chinese PV manufacturer skipped its interest payments in August.

This time the reprieve is only for two weeks, meaning the interest payments are due again on 10 December.

LDK lost $165.3m during the second quarter of 2013, but its modestly improved third-quarter performance comes amid a significant sweetening in global PV market dynamics.

Several major Chinese PV manufacturers have already returned to profitability, including Trina Solar and JinkoSolar, in addition to Canadian Solar, which performs most of its production in China.

The outlook for LDK continues to look significantly worse than for many of its rivals, and represents something of a black cloud over the Chinese PV sector.

The company, which started as a wafer maker before diversifying both up- and downstream, reported an operating loss of $77.5m during the third quarter, and a gross margin of negative 24%.

Trina, in contrast, posted an operating profit of $6m and a positive gross margin of 15.2% during the same quarter.

LDK chief executive Sam Tong insists the company remains committed to finding a “consensual solution” with its creditors.

But with just $156.6m in quarterly revenue set against nearly $2.4bn in short-term debt, it is difficult to see how LDK could possibly regain its financial footing in the absence of a restructuring programme wiping out foreign debt-holders.

Suntech’s collapse is likely to result in a similar outcome for foreign creditors, although the difference there is that Suntech was actually forced into bankruptcy by Chinese banks.

Last week LDK secured a new package of loans with Chinese banks worth 1.56bn ($256m). LDK explicitly stated that that money would be ploughed into expanding and modernizing its Chinese production facilities, rather than paying back its creditors.

“We remain committed to improving our cost structure by driving down production costs, reducing operating expenses and adapting our business to the evolving demand environment,” says chief executive Sam Tong.

LDK has in the past expressed its belief that its future prospects hinge in large part on the successful lift-off of the Chinese solar market.