LDK Solar Gets a Hand from the Chinese Government

LDK Solar
LDK Solar

LDK Solar (LDK) recently announced the completion of the $240 million investment by China Development Bank International Holdings Limited (a wholly owned subsidiary of China Development Bank Corporation). Under the deal, the holding company purchased an 18.5% stake in LDK's polysilicon production unit, LDK Silicon & Chemical Technology Co., with LDK Solar retaining the rest. LDK is a leading vertically integrated manufacturer of photovoltaic products, and a leading manufacturer of solar wafers. It competes with other solar energy players like First Solar (FSLR), Suntech Power (STP) and Sunpower (SPWRA).

We continue to maintain a positive outlook on the company's stock value, which we estimate at just about $12.

Stimulus from the Chinese Government Remains Strong

Our price estimate for LDK Solar stands at a 73% premium over the current market price of $7. A possible reason for the market's pessimism over LDK is the recent postponement of LDK Solar's debt offering, which was originally planned to pay down the company's short-term debts. This may have raised concerns over the company's debt position and whether it can meet its near-term obligations.

The $240 million investment by China Development Bank is a strong indicator of China's commitment towards becoming a leader in solar and other green industries. Additionally, the China Development Bank agreed last year to lend 232 billion yuan ($35.4 billion) to Chinese wind and solar companies, including a more than $9 billion credit line to LDK over the next five years, which should significantly ease any debt pressures that might arise for the company.

LDK Solar has delivered on its fundamentals, and posted close to 4% growth in its gross margin in the first quarter of 2011 from the previous quarter, indicating solid execution of its long term strategy of vertically integrating its photo-voltaic businesses.

Given these factors, we believe that concerns over the company's short-term liquidity position are excessive.

See our full analysis for LDK Solar

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