Chinese Solar: First Bond Default Likely Tomorrow – Suntech Power Holdings Co., Ltd. (ADR) (STP), LDK Solar Co., Ltd (ADR) (LDK)

JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) has convertible bonds due in May, Trina Solar Limited (ADR) (NYSE:TSL) has convertible bonds due in July of this year, and LDK Solar Co., Ltd (ADR) (NYSE:LDK)has bonds due in February of next year. Each of these companies could potentially face the same challenges Suntech has had to face this week.

For those of you who have followed my solar coverage on over the past year, you know I’ve said over and over again that highly indebted Chinese solar companies are incredibly risky and worth avoiding at all cost. If you must play in Chinese solar, do it with a less leveraged company like JinkoSolar Holding Co., Ltd. (NYSE:JKS) , which is at least less likely to default in the next six months. Personally, I would stay away from Chinese solar altogether.

Foolish bottom line
It doesn’t look like Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP’s likely bankruptcy will take the company entirely out of the industry but it’s a step in the right direction for healthier competitors. The industry has about 70 GW of capacity and only about 30 GW of demand, so more manufacturers are going to have to go under before margins increase and we see anything close to a profit.

This is another reason to stick with U.S. solar manufacturers. They’re not as sexy from a cost standpoint but they’re much healthier financially, and it looks like the free flow of money from China is going to come to an end eventually.

The article Chinese Solar: First Bond Default Likely Tomorrow originally appeared on and is written by Travis Hoium.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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