Photovoltaic industry: Where is the money from?

On January 3rd, German solar photovoltaic manufacturing company Sunways AG announced that in order to increase its legal capital, the company reached an agreement with Jiangxi Saiwei (NYSE:LDK), which will subscribe for the company’s private placement with approximately 2.2 million euros. Ten million new shares, after the subscription is completed, LDK will hold a total of about 33% of the company's shares.

LDK also announced that it intends to obtain all remaining shares of Sunways' outstanding shares. Sunways revealed that the LDK LDK bid is expected to be issued by the end of January 2012 at a price of 1.9 euros per share. With a total share capital of 11.59 million, the total purchase price was approximately 24.2 million euros, or approximately 198 million yuan. Sunways' total revenue in 2010 was 262 million euros. After the review by German antitrust authorities, the acquisition is expected to be completed before the first quarter of this year.

It is a great challenge for LDK to have money to honor the acquisition.

As of September 30, 2011, LDK’s cash and cash equivalents totaled US$262.6 million, while short-term liabilities reached US$2.354 billion, equivalent to 10 times its cash. At the same time, its total liabilities have reached 5.851 billion US dollars. According to data from Bloomberg News, LDK will need to pay the outstanding principal and interest of loans up to 2020 by a total of 10.01 billion U.S. dollars.

Profit outlook

From the second half of 2011 to the beginning of 2012, it was the adjustment period of the entire photovoltaic industry. The decline in product prices and the shrinking of the European market brought the photovoltaic industry to the bottom.

Photovoltaic industry fluctuations are as predictable as the semiconductor industry, and the current low point is the development of the photovoltaic industry in the real sense, according to sources at U.S. photovoltaic equipment providers who supply equipment for Suntech and LDK, which has a 60% share in the domestic market. In the first trough, no company can do it alone.

Li Shengmao, a senior research fellow at China Investment Consulting, said that LDK chose to make such an acquisition at this time. The biggest temptation is that Sunways is currently offering prices. LDK will subscribe for 5.98 million new shares of Sunways to increase its legal capital by 2.2 million euros. The price per share is 0.38 euros/share, which is much lower than the actual price.

"Not because of the impending bankruptcy, the company will not be sold at this price." Li Shengmao said. And Stefan Freudenreich, an analyst at Equinet Bank AG in Frankfurt, also stated that Sunways was under financial pressure and had no choice but to sell itself to LDK, so LDK purchased a well-known brand with technology and sales channels at a low price.

Another important reason is that LDK has a long-term relationship with Sunways.

Sunways' total revenue for 2010 was 262 million euros, with solar cells, components and inverters occupying 41%, 36% and 23%, respectively. According to an industry-leading company executive, Sunways began cooperation with Levi in ​​2006 and the initial cooperation was in the field of polysilicon equipment. At the beginning of LDK Solar’s ​​reduction furnace and hydrogenation furnace were purchased from Sunways. With the continuous expansion of LDK's business, its cooperation has also extended to component and system integration.

LDK acquisition of Sunways, LDK also lies in its system integration technology. In the current domestic system integration field, there are two major companies, GCL Optronics and China Ocean, occupying an advantage.