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JinkoSolar's cash burn stirs more talk of China listing exits

JinkoSolar Holding Co. Ltd., one of the world's top producers of solar cells and panels, is burning through money to expand its manufacturing capacity with no "specific" plan to start generating positive cash flow anytime soon, a company official said Dec. 7.

The Chinese firm spent 680.5 million yuan, or $102.3 million, on operating expenses during the third quarter while taking in RMB 91.9 million in operating income. The imbalance is likely to persist as JinkoSolar boosts production of silicon wafers, executives said on an earnings conference call. "[We] are trying our best to make positive free cash flow. But so far, especially at [the] current time, we don't have a specific plan," said Sebastian Liu, the company's head of investor relations.

The company could be one of the next Chinese manufacturers to exit the public markets, said Paula Mints, chief analyst at SPV Market Research. Having achieved industry dominance, Chinese firms "don't need our money or scrutiny," she said.

Brad Meikle, a senior renewable energy analyst at Coker & Palmer Investment Securities Inc., who pressed JinkoSolar executives on the company's cash flow Dec. 7, also said he wouldn't be surprised if the firm pulls its listing from the New York Stock Exchange. "They have a chronic pattern of [free cash flow] being negative and they all blame the U.S. markets — figure they will relist in China," Meikle said in an email.

A JinkoSolar representative did immediately respond to a request for comment on Dec. 7.

In March, Trina Solar Ltd. went private through a merger with Red Viburnum Co. Ltd., a subsidiary of China-based Fortune Solar Holdings Ltd. ReneSola Ltd. in September transferred its manufacturing business to company Chairman and CEO Xianshou Li, whose brothers co-founded and work for JinkoSolar. And in November, JA Solar Holdings Co. Ltd. said it was on the verge of going private through a deal with its chairman and CEO, Baofang Jin.

Betting on 'a dream'

Solar cell and panel manufacturers suffered last year from plunging prices as supply outstripped demand. But even this year, with better-than-expected demand and rising prices, "there's still not a lot of free cash flows," Meikle said on JinkoSolar's earnings call.

Unprofitability has been a persistent issue in the solar industry, according to Mints. "Underbidding on [power purchase agreements], low margin sales of cells ... and other components, unquestioning acceptance of the more-solar-installed-the-better fallacy, the rewarding of market share instead of profitability and the setting of lofty goals for low prices and continued accelerated building are symptoms of chronic volatility," she wrote in an April research note.

First Solar Inc. CEO Mark Widmar blamed financial problems in the solar manufacturing sector on an unrelenting push for growth. "The view is, 'I can't differentiate myself on my technology, but I can differentiate myself on scale.' What that has resulted in then is a tremendous amount of capacity expansion, highly levered balance sheets in order to fund that growth and subpar economics and an oversupplied market," Widmar told analysts Dec. 5 at the company's manufacturing plant in Perrysburg, Ohio.

Compounding the problem is the fact that some Chinese manufacturers that are "technically insolvent" are "still able to get access to capital," Widmar said recently at The New York Times's Climate Tech conference in San Francisco.

Mints said the solar industry can continue operating with poor economics "as long as China is willing to support it."

Meikle pushed back on suggestions that the broader manufacturing industry is unprofitable, pointing to other companies whose capital expenditures are more "balanced" than JinkoSolar's.

JinkoSolar said third-quarter net income attributable to ordinary shareholders fell by 95% year over year to RMB 11.3 million, while module shipments increased by 48% from a year earlier to 2,374 MW. The company's shares closed at $24.48, up 2.77% on above-average volume in trading on Dec. 7.

Solar investors are betting on "a dream," Mints said.

As of Dec. 7, US$1 was equivalent to 6.6 yuan.