LDK Solar receives $321 million state-backed loan

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LDK Solar Co. has been loaned 2 billion yuan ($321 million) by a consortium of 11 financial backers – led by China Development Bank – as the company seeks to regain its financial footing after defaulting on a matured bond in February.

According to reports from Bloomberg, LDK will invest more than 400 million yuan of that sum on a new polysilicon project, steering the other funds into its cash reserves.

The first quarter of 2014 was difficult for the company. On February 28 LDK missed a semi-annual payment on its 1.7 billion yuan of notes, prompting insolvency proceedings to be initiated and the New York Stock Exchange to delist the company following "abnormally low" share prices.

In response, most of the LDK bondholders gave the green light for a restructuring deal that has helped bring a measure of stability back to the company’s operations. Since those dark days, and following the first ever onshore bond default by a Chinese company when Chaori Solar Energy was unable to meet a coupon payment, the Chinese government has stepped up its efforts to support parts of its floundering domestic solar industry.

"The worst is over for China’s solar industry," Yang Kun, bond analyst at Guotai Junan Securities Co. in Shanghai, told Bloomberg. "These loans to LDK show the government is supporting the company and the industry. It’s unlikely LDK will default on other borrowings in the future."

Despite syndicated lending in China plunging by 42% year-on-year (falling to $9.3 billion so far in 2014 – the lowest level at this stage of the year since $9 billion was loaned in 2010), LDK’s lifeline is being viewed as a concerted effort by the company and the government to ward off the fate that befell Suntech Power Holdings Co., which in March last year entered bankruptcy proceedings after defaulting on a $541 million bond. Since then, the company has been restructured as Wuxi Suntech after Shunfeng Photovoltaic won the bid to acquire the company.

For LDK, immediate sailing appears just that little but plainer after China’s state intervention, but whether this investment has the desired longer-term impact remains to be seen.