Yingli Green Energy reveals hefty debt burden, may have to liquidate assets

In a bombshell SEC filing issued after the close of the U.S. markets late on Friday, Yingli Green Energy, the second-largest solar company in the world, has warned that it may be unable to continue as a going concern due to "substantial indebtedness".

The 20-F filing was released shortly after the company published its delayed 2014 financial figures, and candidly lays bare the stark situation of Yingli’s financials. "Our substantial indebtedness could adversely affect our business, financial condition and results of operations, as well as our ability to meet our payment obligations under our debt instruments and further grow our business," read the filing.

Yingli revealed that it has outstanding short-term borrowings of RMB 10,112.1 million ($1.63 billion) and long-term debts of more than $460 million. This level of debt, the company added, could make it more difficult to meet its payment obligations, resulting in cross-defaults that could trigger restrictions in the company’s ability to secure further financing, thus placing it at risk of liquidation.

The filing continued: "If we become unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our audited consolidated financial statements."

Yingli’s lack of cash resources and its potential inability to continue as a going concern will likely then adversely affect the company’s share price and overall value.

At the end of April, Yingli was granted a 15-day extension in filing its 2014 annual report, triggering rumors within the industry that the company’s long-term financial health had suffered. Yingli recently agreed a pre-funding payment of approximately $207 million to China Government Securities Depository Trust and Clearing Company Limited – a payment that industry watchers believe was made to allay fears that Yingli was in financial trouble.

No longer market leader

Since leading the solar industry between 2012 and 2013,Yingli was shunted from top spot last year by Trina Solar, and its recent financials – though solid – have seen the company slip even further behind. In 2014, Yingli shipped a record high 3.3 GW of modules, which increased the company’s gross margin to 17.3%, up from 10.9% in 2013.

Efforts to diversify its market presence and reduce manufacturing cost were successful, the company claimed, with gross profit reaching $360.7 million. However, weighed down by debt, the company’s operating loss was actually RMB 215.2 million ($34.7 million) last year, which equated to a negative 1.7% operating margin.

And despite being a recognized presence in the leading solar markets, Yingli’s "significant short-term borrowings" are proving a millstone for the company, which added in its filing that it may not be able to renew them when they mature.