LDK Solar Co., Ltd (ADR) (LDK): Death Spiral Continues

There doesn’t seem to be a shortage of bad news for LDK Solar Co., Ltd (ADR) (NYSE:LDK) lately. The company defaulted on loans earlier this week, bringing on concerns of a pending insolvency or bankruptcy, and today released some dismal earnings numbers.

LDK Solar Co., Ltd (ADR) (NYSE:LDK)LDK isn’t reporting first quarter earnings like the rest of the report on the wires; it’s reporting results from all the way back in the fourth quarter of 2012. By the look of it, things aren’t going well at all for this Chinese solar maker. Sales fell 53.4% sequentially, to $135.9 million, and net loss jumped more than five fold, to $514.7 million.

The downward trend for LDK Solar Co., Ltd (ADR) (NYSE:LDK) has been steep, and the red ink has been flowing for well over a year. You can see below that sales have cruised lower over the past year, reaching an unsustainably low level in the fourth quarter.

Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Net Sales $420.2 million $200.1 million $235.4 million $291.5 million $135.9 million
Gross Margin -65.5% -65.5% -39.1% -11.2% -60.5%
Net Loss $564.6 million $185.2 million $254.3 million $136.9 million $517.0 million

Source: Company earnings releases. 

Solar companies have reported losses for some time now, but LDK Solar Co., Ltd (ADR) (NYSE:LDK) has more debt than most companies, and won’t be able to survive with such feeble numbers. At the end of 2012, debt stood at $2.8 billion, and we know now that the company ran out of cash just this week. There’s no way LDK Solar can survive on just $135.9 million in quarterly revenue and that kind of debt level.
A problem across solar
High debt loads and feeble margins aren’t a challenge faced by LDK Solar alone. Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) gave in to these pressures last month, defaulting on its own debt. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) is now the most indebted Chinese solar company, with $2.5 billion in debt, and I wouldn’t doubt if they’re not far behind LDK and Suntech. The defaults of Suntech and LDK has to be concerning for all of Chinese solar, especially if banks don’t keep the free flow of funds that have powered a rapid expansion in production.