Yingli Green Energy Holding Co Ltd (ADR) (NYSE:YGE) is struggling to stay afloat amid swelling debt, widening losses and shrinking margins. The company reported a net loss of $500 million in the recent quarter. The undisciplined capacity addition by Chinese solar companies can partly explain Yingli’s woes. However, there are reports that the company could get a lifeline to at least keep it in business as a major restructuring is considered.
Government rallies support
The Chinese government is asking banks to support Yingli to remain in business and a number of lenders are said to be responding positively to the call. As such, there are reports that Yingli could receive a $300 million fresh cash injection from banks. Part of the negotiation with the banks is also said to include amending terms for certain pending debts.
Renegotiating debt terms with creditors could allow Yingli some breathing space as it works towards a dramatic reorganization. Yingli had about $1.9 billion in debt as of the end of 3Q2015, which possibly ballooned over the last three months of the year.
China Development Bank is said to be among the lenders willing to support Yingli Green Energy Holding Co Ltd (ADR) (NYSE:YGE) to remain in business. Part of the reason the Chinese government is willing to throw a lifeline at its struggling solar industry is that it hopes to preserve jobs in those sectors. If Yingli were to go out of business, the result could be chaotic for China’s labor market.
Curse of thoughtless capacity addition
Chinese solar panel companies shot themselves in the foot as they raced to add capacity that led to oversupply in the market. That triggered price declines amid soft demand. The situation has made it difficult for Yingli Green Energy Holding Co Ltd (ADR) (NYSE:YGE) to fund its operations, forcing it to rely on debt to stay afloat.
Rallying banks to back the struggling solar industry appears to be just one in a series of measures the Chinese government is trying to work out for the industry. It is reported that the government is trying to encourage solar panel makers to take loans against their completed and commissioned solar farms. Those assets generate steady income and can attract investors who may not be willing to invest directly in the stocks of the struggling solar panel companies.