XINYU, China (
) -- Rumors are swirling in the Chinese press about a spinoff of
polysilicon plant business, and plans to conduct an initial public offering on the Hong Kong Stock Exchange.
Rumors in the Chinese press about the doings of solar firms are nothing new -- and the general reluctance of solar management to speak to the market frankly only helps to spur speculation, much of which can turn out to be no more solid than a solar company's sales forecast.
Regardless of the veracity of this rumor -- reported by Chinese Web site 163.com, which claims to have a direct quote from LDK CEO Peng Kianfeng -- any reports about LDK's polysilicon plant business lead directly to the bigger, and more important, question for LDK and its investor: How will it reduce its mountain of debt?
LDK's debt-to-total assets ratio has been climbing steadily over the past two years and now is at the level of 50% of total assets. LDK management has talked about the need to reduce debt and, in fact, recently
sold a 15% stake in the polysilicon business to
Jiangxi International Trust
for about $219 million.
That deal, however, did not go anywhere near far enough to remove the issue of LDK's debt mountain, and LDK has debt payments coming due soon, according to analysts who cover the company. "They've got a lot of debt coming due and they need cash," said analyst Colin Rusch of ThinkEquity.
Indeed, analysts who cover LDK say that while the rumors of a spinoff of the polysilicon business may be inaccurate, LDK is likely pursuing every single option to raise additional capital, and if the public markets present the best option, LDK probably would not hesitate to pursue a spinoff.
"You can make the case that LDK has the worst balance sheet in the solar industry. It's fair to say LDK is an extremely highly leveraged company and selling the 15% stake in the polysilicon plant was one step, but not nearly enough," said an analyst who covers LDK but did not want to be quoted due to his personal conversations with the company.
Analysts seem to believe that selling another stake in the polysilicon plant would be more likely than a large initial public offering. "I doubt they would sell the whole thing, but they are trying to figure out how to monetize it," Rusch said, adding, "they clearly have some issues with the current balance sheet."
Another analyst who covers LDK said he believes LDK will eventually sell up to 49.9% of the polysilicon plant, allowing it to remain the majority owner, and however LDK can get to that target -- using public markets or private deals -- will be considered.
While LDK shares were up early on the report, the bump did not last; by the early afternoon on Wednesday, LDK shares were down 0.3%.
-- Reported by Eric Rosenbaum in New York.
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