Last winter, I asked whether "Too Big to Fail" extends to the solar power industry. I was speaking about LDK Solar
Obviously, LDK is not systemically important to China in the way a financial firm like ICBC is. Still, the country is making a concerted effort to establish a globally competitive clean energy industry. One way to achieve this goal is to choose favorites. It's become clear to me that once Chinese solar companies reach a certain critical mass, they gain access to essentially unlimited financing from government-backed financial entities.
We saw this in July when Solarfun Power
LDK, the world's largest solar wafer producer, is another. Underlining this fact is this week's news of a "strategic financing agreement" with China Development Bank, a 100% government-owned entity. CDB, which cut similar deals with Trina Solar
I've warned investors repeatedly that LDK, with leverage ratios considerably higher than smaller competitor ReneSola
As a capitalist, I suppose I should enjoy a game that's rigged in favor of a set of select firms. There's nothing like a nice oligopoly to lock in above-average returns on invested capital. That being said, I'm still reluctant to put my money behind LDK. In terms of running the company for per-share value creation, the track record to date is less than comforting.