LDK Solar says will miss debt payment; shares down

Tue Aug 27, 2013 11:14am EDT

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(Reuters) - China-based LDK Solar Co Ltd's LDK.N cash levels dwindled to their lowest in nearly four years and the debt-laden company said it would be unable to meet a debt payment due on Wednesday.

It will be the second time this year that LDK has failed to make a debt payment. The company partially defaulted on a $24 million bond in April, citing a temporary cash flow shortage.

LDK shares were down 14 percent at $1.49 in morning trading on the New York Stock Exchange.

"At this moment we do not have sufficient money yet," an LDK executive said on a post-earnings call in response to an analyst's question.

"We have not met that commitment whether to pay tomorrow. There will be a delay in this payment," he said.

The 1.2 billion yuan ($196 million) senior note will mature in February and carries a 10 percent coupon rate, payable semi annually.

At 29 cents on the dollar the bond has already been trading at levels associated with a high risk of coupon default or bankruptcy.

Chinese solar companies piled on debt over the past two years to expand output, eventually leading to a glut that sent prices of solar products tumbling.

Analysts have long warned that LDK would very likely have to seek bankruptcy protection, but for support from the Chinese government, as its debt levels far exceed the cash flows it is capable of generating.

The Chinese lenders of Suntech Power Holdings Co Ltd STP.N dragged its main unit into insolvency proceedings in March after it defaulted on $541 million in bonds.

"LDK's balance sheet makes it a 'zombie company.' It only survives due to continued bailouts from local or provincial authorities," said Raymond James analyst Pavel Molchanov.

The company, which primarily makes solar wafers used to build solar cells and panels, has total debt of $2.76 billion, of which $2.65 billion is short-term, according to Molchanov.

LDK is one of the most indebted solar products makers, according to Thomson Reuters data.

The company's cash and cash equivalents more than halved to $85.1 million in the second quarter ended June 30, from the first quarter.

LDK's gross margin slid to negative 46.9 percent in the second quarter, in contrast to the positive gross margins reported by its rivals Canadian Solar Inc (CSIQ.O), Trina Solar Ltd (TSL.N) and JinkoSolar Holding Co Ltd (JKS.N).

JinkoSolar even swung to a profit in the second quarter after seven quarters of loss.

BETTER THIRD QUARTER?

LDK, however, joined its rivals in saying it was starting to see early signs of improvement.

The company expects revenue to rise to $140-$180 million in the current quarter from $114.7 million in the second quarter.

Most of the increase is likely to come from higher wafer shipments, which are expected to be between 350 megawatts (MW) and 450 MW. The shipments were 303.9 MW in the second quarter.

Cell and module shipments are expected to shoot up to 60-80 MW in the third quarter, from 35.3 MW.

The company's net loss narrowed to $165.3 million, or 97 cents per American Depositary Share (ADS) in the second quarter, from $254.3 million, or $2 per ADS, a year earlier.

A sharp cut in manufacturing costs contributed to the smaller loss. LDK has laid off nearly 15,000 people in the past year and had 8,168 employees as of March 31. ($1 = 6.1225 Chinese yuan)

(Additional reporting by David Gaffen and Krithika Krishnamurthy; Editing by Tom Pfeiffer, Savio D'Souza and Maju Samuel)

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