Yingli receives $300m state-backed loan to ease restructuring process

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China’s Yingli Group, which announced that it had begin a restructuring process last month, has received a loan of around CNY 2 billion ($304 million) this week from the state-backed Chinese National Development Bank (NDB) as the company looks to ease its debt burden.

The funds will be released, it is understood, prior to the beginning of the Chinese New Year on Monday. Thus, there is intense speculation in China that Yingli’s cash flow situation must be dire, with rumors abounding that, without the funds from the loan, the solar company might be unable to remunerate it staff prior to the most important national holiday in the country.

Financial report for Q3 2015 revealed that Yingli’s total assets stood at CNY 20.7 billion (just over $3 billion), while total liabilities are CNY 23.9 billion ($3.6 billion). The company’s current assets of CNY 11.1 billion and current liabilities of CNY 18.4 billion mean that Yingli is technically bankrupt.

However, drastic efforts are likely to be taken in China to avert a full bankruptcy. Should Yingli be allowed to go under, more than 20,000 jobs would be lost and local economies around the country would suffer heinously as a result. Local government leaders would be unwilling to accept this, so Yingli’s "too big to fail" reputation will likely remain intact, particularly given the fact that most of its creditors are state-owned banks that are protected from bad debt losses.

Led by leading departments of China’s central government, a high level meeting was held last month to thrash out a plan to save Yingli. Following the meeting, a governmental document was filed to related parties, including the major creditor banks, which instructed them to cooperate fully, but cautiously, with government on the rescue action plan.

In the document revealed by Chinese media, the China Banking Regulatory Commission (CBRC, administrative department for all banks in China) and National Energy Administration (NEA) expressed clearly that "due to the important standing of Yingli in the PV industry, its great impact to society, and also Yingli’s core industry technologies, CBRC and NEA support the restructuring of Yingli". This official government line is also a lifeline for Yingli, which can expect the same rescue package as that thrown to previously beleaguered firms, Suntech and LDK.

Plan of action

There are a series of possible restructuring plans currently under consideration, but no official strategy has been formalized thus far. However, industrial observers believe that one possible course of action could be a debt-to-equity swap. Creditor banks would get discounted shares based on their amount of rights owed to them, and sell them on in future for a profit, should Yingli survive and return to profitability.

Because Yingli still has healthy manufacturing capacity, and the technical bankruptcy is merely a symptom of high financial costs, this debt-to-equity swap plan may serve to immediately stem such injurious losses and help Yingli to financially recover.

Another option would be to introduce strategic investors, which means taking the path marked M&A. Hong Kong listed company, the United PV group, which is also a subsidiary of major Chinese state-owned enterprise China Merchants Group, is rumored to be an interested investor. China Cinda Asset Management Corporation, one of the four major state-owned asset management companies, is another.