Why Is The Chinese Government Stepping In To Help Yingli Green Energy?

Over the last few weeks, there have been reports that Yingli Green Energy (NYSE:YGE) will receive about 3.3 billion yuan ($500 million) in loans from the state-backed China Development Bank and the government of its home city of Baoding, as the beleaguered solar firm tries to reorganize its balance sheet. ^[1] The support would mark one of the most significant interventions by the state in recent years to shore up a struggling solar company, considering that the government largely allowed players such as Suntech Power and LDK Solar to go bankrupt after they failed to service their debts. So why exactly is the government stepping in to help Yingli and what could the support mean for the company?

We have a $5.50 price estimate for Yingli, which represents a 30% upside to the current market price.

See Our Complete Analysis For Solar Stocks Trina Solar|Yingli Green Energy |First Solar |SunPower

Yingli Has What it Takes To Capitalize On The Expanding Global Solar Market

The global solar market has been faring well, owing to the recent policy tailwinds (COP21 and U.S. ITC extension) as well as growing demand from emerging markets. Installations are poised to grow by roughly 16% this year to about 67 GW according to IHS. The decline in module pricing has also been more moderate as compared to previous years given the relatively better supply-demand equilibrium in the market, which has allowed a majority of the large Chinese solar companies to return to profitability.

Yingli appears to be in a fairly good position to take advantage of this demand growth, given its well recognized brand, wide distribution footprint and its vast manufacturing capacity (about 4 GW for modules as of May 2015). However, while many of Yingli’s peers such as First Solar and Trina Solar have been operating at near full capacity in 2015, Yingli is only expected to have shipped about 2.4 GW of modules for 2015, implying a utilization rate of 60%, as it has been seeking to conserve cash for its debt payments (related: Yingli Posts Tough Q3 Amid Focus On Upcoming Debt Payments). A liquidity infusion could help the firm ramp up production.

trefis_slideshow ticker=”yge” rhs=”3″]

Yingli’s Current Woes Are Largely Financial, Not Operational

Much of Yingli’s current woes have to do with its capital structure, rather than its core operations. The company had a total debt load of roughly $1.9 billion at the end of September 2015, and the company hasn’t turned a profit since Q2 2011. A bulk of the firm’s recent net losses have stemmed from high interest payments. During Q3 2015, interest expenses alone stood at about $40 million, accounting for roughly 11% of the company’s revenues and about 70% of its gross profits.  There is a possibility that the new loans could be used to help Yingli replace its old debt with lower-cost loans, effectively easing the company out of its current debt trap. Moreover, as part of the bailout, Yingli might be required to focus on its photovoltaic business, while its other businesses and non-performing assets could be sold or restructured. ^[2]

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Yingli Said to Get 3.3 Billion Yuan in Loans Amid Restructuring, Bloomberg, February 2016 [↩]
2. China Picking Winners in Solar Industry With Backing for Yingli, Bloomberg, February 2016 [↩]