Darlings To Defaults – Behind Every Default Was Once A Good Investment

Horror stories have pretty promising starts and behind every default was once a good investment.

It starts like this.

Jan 2012
Chaori Solar Energy Wins 110m Euro Solar Module Supply Contract
Jan. 12 (Bloomberg) — Co. will supply 150 megawatts of modules this year to China Solar Gmbh, the company said today in a statement to the Shenzhen stock exchange.
Chinese Solar Stocks Rise After Solar Power Development Plan
Jan. 12 (Bloomberg) — Chinese solar stocks rose after Liu Tienan, head of China’s National Energy Administration, says the nation plans to start developing 3 gigawatts of solar power capacity in the five years through 2015.
• Shanghai Chaori Solar Energy Science & Technology Co. shares rose 10% to 14.80 yuan in Shenzhen as of 10:05 a.m. local time
• Risen Energy Co. shares rose 4.72% to 13.32 yuan

The story progresses and gets better.

Mar 2012
Chaori Solar Energy to Sell Up to 1b Yuan of Bonds on March 7
March 4 (Bloomberg) — Bonds will have maturity of no more than 5 years, according to a statement to the Shenzhen Stock Exchange.

Apr 2012
April 16 (Bloomberg) — Linuo Power Group’s 30-megawatt solar-generation plant in Xigaze in Tibet has started operation, China’s official Xinhua News Agency said, citing Wang Xijing, the city’s Communist Party secretary.
LDK Solar Co. is building a 60-megawatt solar-generation plant in the same location and Chaori Solar is constructing a 10-megawatt plant there, Xinhua reported. The total 100-megawatt solar capacity will be China’s largest, it said.

Jul 2012
July 20 (Bloomberg) — Shanghai Chaori Solar Energy Science & Technology Co., a maker of solar cells, is diversifying into mining amid a global solar supply surplus.

Aug 2012
Most China Stocks Advance as U.S. Data Bolster Solar Companies
…     Shanghai Chaori Solar Energy Science & Technology Co. advanced 2.8 percent to 5.11 yuan.

Oct 2012
China Solar Stocks Climb on State Grid Power Purchase Report
Oct. 29 (Bloomberg) — Shanghai Chaori Solar paced gains among photovoltaic stocks after China National Radio said the nation’s power grid company will buy power from small-scale solar power projects.
• Chaori jumps 5.4%

Then, more characters are roped in to complicate the plot and to bait more victims.

Oct 2012
China to Encourage Private Investments in Energy: Xinhua
By Bloomberg News
Oct. 24 (Bloomberg) — China will open all projects listed in the national energy program, except those that aren’t legally allowed, to private capital, the official Xinhua News Agency reports, citing a white paper on China’s energy policy released by the Information Office of the State Council.

Chaori Rises on Brazil’s Solar Farm Plan: Shanghai Mover
Oct. 16 (Bloomberg) — Shanghai Chaori Solar Energy Science & Technology Co., a Chinese maker of solar cells, is heading for the biggest gain in two and a half months after saying it will develop 272 megawatts of solar farms in Brazil.

The first scares come.

Mar 2013
March 19 (Bloomberg) — Solar stks may fall after Suntech defaults, China seen canceling solar subsidies.

Shanghai Chaori Solar denies report it was filing for bankruptcy, says it’s working “actively” to alleviate liquidity pressure: statement; co. suspends trading today….

But things improve.

Apr 2013
China Allocates 14.8 Billion Yuan for Clean-Energy Subsidies
April 3 (Bloomberg) — China allocated 14.8 billion yuan ($2.4 billion) for renewable-energy subsidies to drive the expansion of clean power in the biggest carbon-emitting nation.

Jul 2013
Solar Shares Rise in Shanghai, Shenzhen After Gov’t Support Plan
July 16 (Bloomberg)  ….Shanghai Chaori Solar rose as much as 3.9% to 2.95 yuan

Aug 2013
China Solar Industry May Stabilize, Rebound in 2H: Ministry
Aug. 15 (Bloomberg) — China’s solar industry development may rebound in 2H with an improvement in the “external environment,” according to a statement dated yesterday posted to the Ministry of Industry and Information Technology’s website.

More warning signs but largely ignored after the first scare.

Dec 2013
China Asks Power Grids to Buy All Solar Power They’ve Access to
Dec. 10 (Bloomberg) — Power grid company should buy all the solar power within its power grid coverage, according to a notice issued by the National Energy Administration on its website yesterday.

The killer blow comes.

Mar 2014
Chaori Bondholders Weigh Lawsuit After China’s First Default
March 11 (Bloomberg) — Holders of bonds sold by Shanghai Chaori Solar Energy Science & Technology Co. will consider a lawsuit to force payment after the company became the first to default on onshore corporate debt in China.

There is solidarity in numbers and it is good to default en masse to avoid the additional attention. Some of the corrupt are probably cursing themselves for not borrowing more or reselling the same collateral a few more times to raise even more cash for their escape route but the market has been milked quite dry.

Do not make the mistake of attributing defaults to China. Energy Future Holdings in the U.S. is seeking bankruptcy for an even larger sum which is a true shame for it had been a rock solid BBB company in the past, having bought their bonds before.

This is the 10th largest default in American history, of a company that counted Goldman Sachs as an investor in the largest leveraged buyout in history back in 2007. Even Warren Buffet owns 2 billion of their bonds. http://www.bloomberg.com/news/2014-02-10/energy-future-said-to-meet-with-banks-for-bankruptcy-financing.html

And we have USEC Inc, an uranium supplier and producer, filing for Chapter 11 with assets of just $ 70 million versus debt of $ 1.07 billion. http://www.reuters.com/article/2014/03/05/usec-bankruptcy-idUSL3N0M23DB20140305

Both have seen happier times when they were issuing bonds to happy to buy investors, just like all the Chinese companies that are queuing up to quit now. What happened to all the cash ?

Poor investments ? Wrong valuations ? Or …

Fraud ? (as in the case of Zhejiang Xingrun, the real estate developer that is rumoured to be next in line)
“CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.” http://www.zerohedge.com/news/2014-03-18/pboc-denies-it-will-bail-out-collapsed-real-estate-developer-while-chinese-property-

The money is somewhere. In someone else’s pockets and the easiest method I can envisage is through a series of overvalued acquisitions that profit someone else and that is why I raise my eyebrows at all these M&A activity around us especially listing assets under another company to monetise the over valuations, perhaps ?

Bonds, shares and debentures and so on, they all look good at the starting line. I just pity the honest folks like those who had invested their hard earned savings into Bankia and the rest of the Spanish banks and are getting a fraction of their investment back in stock (which has gone up since Mar 2013 though but not enough to cover their losses yet). http://www.bloomberg.com/news/2013-03-22/spain-values-bankia-shares-at-1-euro-cent-as-debt-swap-looms-1-.html