Chaori Solar confirms historic default


With media outlets including the BBC, Bloomberg and Reuters reporting Shanghai solar manufacturer Chaori Solar today confirmed its status as the first Chinese company to default on a domestic corporate bond, the attention of the mainstream media has once again focused on the solar sector at a time of crisis.

Having strayed into the consciousness of the wider public during last year’s escalating trade war between the U.S. and China and, previously, during Suntech‘s spectacular demise, commentators on both sides of the Atlantic are speculating the Chaori default could prove China’s Bear Stearns or Lehman Brothers moment.

If fears Chaori Solar could trigger a spectacular collapse in public stocks in the People’s Republic may be overblown – the counter argument being the withdrawal of the state safety net for listed companies could introduce some sanity to Chinese stocks – it seems unlikely Chaori will be the only company to default.

The Chinese government signalled its intention to drive consolidation among its plethora of solar companies with the release of its list of 109 approved companies at the turn of the year.

Chaori Solar was among 109 favored companies

One surprising aspect of Chaori’s predicament – which has seen the company fail to pay a reported CNY89.9 million (US$14.7 million) interest payment on a CNY1 billion loan taken out two years ago – is that the manufacturer is one of the 109 companies to make the list of businesses complying with the government’s manufacturing standards.

The BBC says Chaori is proposing to settle CNY4 million of the CNY89.9 million owed to bondholders.

Perhaps unsurpisingly, there is no mention of the default on the English language version of the Chaori Solar website.

The warning signs were evident on the Shenzhen stock exchange website which, in May, announced the de-listing of a Chaori bond after consecutive losses for the company in 2011 and 2012, only the third time a public bond had been de-listed on the Shenzhen exchange and a move which had been foreshadowed by warnings from Chaori since the previous February.