Solar Share Buybacks Won’t Stop the Bloodletting (JASO, LDK, JKS, GTAT, FSLR, SPWR)

Energy

Published: June 14, 2012 8:45 am

Chinese solar panel maker JA Solar Holdings Co. Ltd. (NASDAQ: JASO) this morning announced an ADS repurchase plan for up to $100 million by the end of September. The strangeness of this announcement nearly defies analysis.

Let’s review. Last June, LDK Solar Co. Ltd. (NYSE: LDK) announced a stockback plan worth $110 million. At the time, the company’s shares traded at around $7.30 with a target price of $10.50. LDK’s shares closed at at $1.98 last night. Jinkosolar Holding Co. Ltd. (NYSE: JKS) had announced a buyback of $30 million in May 2011 when shares were trading at around $25. Today shares are trading at around $4.00. GT Advanced Technologies Inc. (NASDAQ: GTAT) had put a buyback program worth more than $200 million in place in late 2010. In June the company’s share price was around $13.50, compared with last night’s closing price of $4.35.

US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR) have not bought back any shares.

JA Solar bought back $75 million in shares in 2009. Last June JA Solar’s shares traded at around $5.50. Shares closed at $0.93 last night, but have jumped nearly 20% in the pre-market this morning on the buyback plan.

There are only two possible reasons to bid up shares in any Chinese solar panel maker. First, the buyer is convinced that the Chinese government won’t allow the company to fail and will spend heavily to prop it up. This may include taking over the company completely. Second, the buyer is convinced that the company’s founder and a few close friends are preparing to take the company private at a decent premium to the current share price. This hasn’t happened yet in China’s solar industry, but it’s fairly common in China’s Internet companies.

There is no reason to believe that JA Solar will not be saved by the government, but neither is there any evidence that government support is on its way now. As for a founder’s buyout, that’s not likely until the government gives some hint that it is an acceptable way out for failed companies in this designated strategic industry. But somebody has to be first, and it could be JA Solar.

Shares of JA Solar are up more than 17% in the pre-market at $1.09. The stock’s 52-week range is $0.89-$5.74.

Paul Ausick

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