GCL Leads the Debt Restructuring of Chaori Solar to Pick Up the Last Link of the Value Chain
By Nancy Wu, Lux Research
Shanghai Chaori Solar Energy Science & Technology (Chaori Solar) recently disclosed an announcement on its progress on debt restructuring after its bankruptcy. According to the announcement, China Great Wall Asset Management Corporation (Great Wall) and Shanghai Jiuyang Investment Management Limited Partnership (Shanghai Jiuyang) are going to issue a debt bond of RMB 880 million for Chaori Solar, of which Great Wall will guarantee the liability up to RMB 788 million. The restructure plan also involves a strategic investor group consisting of nine companies, including Shanghai Jiuyang and GCL Group, and GCL will lead the debt restructuring and become the dominant stockholder of Chaori Solar.
Chaori Solar was the first onshore bond default case in China when it failed to pay full interest on its bonds and had to file for bankruptcy in July 2014. However, the introduction of the Great Wall, which is a major state-owned asset management company, indicates that the financial loss of Chaori's investors and creditors will be curbed by the government. This engagement is similar to Wuxi Guolian entering in the restructuring of Wuxi Suntech and further reinforces the necessity of continued government support in China's PV industry development. More importantly, it can restore the confidence of solar PV investors, particularly under the circumstance of industry consolidation and upgrading.
On the other hand, the strategic investor group will be led by GCL Group, the parent company of GCL-Poly Energy Holdings. As the world's largest polysilicon ingot/wafer supplier, GCL also extends to downstream system development business. The only missing link in its internal value chain is cell and module manufacturing. By acquiring Chaori Solar and adding production capacity of 520 MW solar cell and 800 MW module, among others, GCL can vertically integrate its PV value chain, as most other tier-1 Chinese manufacturers, like ReneSola and Yingli, have already done. This strategic merger will help GCL reorganize its manufacturing assets and adopt its own solar panels rather than module outsourcing, thus further lowering its current system development cost. Other benefits include additional government support along with portfolio diversification, since Chaori's module facility is listed on the norm list approved by the Ministry of Industry and Information Technology. Solar businesses should closely monitor the restructuring process of Chaori Solar, as it demonstrates constructive state intervention in struggling Chinese solar companies and represents a good example of how to take over bankrupt solar entities with government support.
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December 15, 2014