Govt bailout plan for LDK Solar sparks debate

The Xinyu Municipal People's Congress defended its bailout plan in an exclusive interview with Xinhua on Thursday.

LDK Solar has amassed funds and already paid back its 500-million-yuan debt, which was borrowed on June 2009 and due on June 29 to Huarong International Trust and Investment Corp. It borrowed another 500 million yuan in three-year-term loans from the same company due to operational difficulties, said Zhao Hongming, speaker of the standing committee of the municipal people's congress.

In order to prompt the goverment to urge LDK Solar to pay back the debt in time, Huarong International Trust and Investment Corp asked the government to put the debt in the government's annual fiscal budget, Zhao said.

LDK Solar has provided its assets as a mortgage, he said.

LDK Solar is a pioneer in China's photovoltaic industry and a helping hand from the government will be conducive to the industry's development and local employment, he said.

President and chief operating officer of LDK Solar Tong Xingxue told Xinhua that as an export-oriented enterprise, LDK has encountered some difficulties, as the US has levied anti-dumping taffifs on its products and the European debt crisis has deepened.

"LDK will use its earnings to pay the loans and use its assets as a mortgage. Its legal representative and board chairman Peng Xiaofeng will provide his personal guarantee," he said.

"The government is not paying for LDK's debt," he added.

But analysts doubt whether the company is capable of paying the debt back, as the price of polysilicon, one of the company's major products, dropped from $400 per kg in 2008 to $20 per kg on July 10 this year.

The local government, which pinned a great deal of its hopes on LDK, is finding itself in a dilemma following the industry's slump, said Ye Tan, a renowned financial analyst.

The government-led economic development model has exacerbated risks, as banks have vied to give loans to government-supported enterprises. The companies then expand their businesses aggressively with the loans. But when a crisis comes, they look to the government to bail them out, Ye said.

It's time for companies that have grown dependent on the government to "regain their consciousness" and compete in the market independently, she added.

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