Insiders making big bets on Chinese solar

Chinese banks are at a crossroads and need to begin letting solar manufacturers fail or risk watching losses continue to grow along with competition

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are some very bullish bets being made by insiders in Chinese solar firms right now, making me wonder if they know something we don’t. Last week JA Solar (Nasdaq:JASO) announced a US$100 million share repurchase program, an incredibly bold bet from a company with a gross margin of 0.5%, US$851.7 million in debt (offset by US$676 million in cash), and a market cap of just US$225 million.

Today, Hanwha SolarOne (Nasdaq: HSOL) announced that three members of senior management bought a total of 301,928 shares of the company’s stock for their own accounts. In the most recent quarter, Hanwha had a -9.4% gross margin, US$664.7 million in debt, and just US$303.1 million in cash.

Neither of these companies are models for operational effectiveness, and the bets have me wondering if management knows something about their future that we don’t.

Chinese banks propping up solar
I’ve argued in the past that Chinese banks are at a crossroads and need to begin letting solar manufacturers fail or risk watching losses continue to grow along with competition. At the end of last quarter, JA Solar had a relatively modest US$153.8 million in short-term borrowings but Hanwha was sitting on US$334.0 million in short-term bank borrowings, meaning the company could go under in a heartbeat if that funding were pulled.

So why would you risk company capital or personal capital if your company’s balance sheet is walking a tightrope that would result in insolvency in any other country? You must know that funding won’t dry up and have extreme confidence that the business will improve.

LDK Solar (NYSE: LDK), Suntech Power (NYSE: STP), and Yingli Green Energy (NYSE: YGE) are in even more extreme positions, sitting on a lot of short-term debt, giving similar risks to investors. But if JA Solar and Hanwha SolarOne are confident in their funding, should these companies be too? Maybe. It’s possible that management knows the short-term funding will last for the foreseeable future and a turnaround in operations is a bet worth making.

Something doesn’t smell right
I’m not sure exactly why such bullish bets were made on these two relatively weakly positioned solar companies, but it just doesn’t smell right to me. Margins are terrible, losses are mounting, and their stock prices are continuing to crater. The information we’ve seen doesn’t indicate this is a good bet, yet management seems to be going all-in.

If you’re in the market for some high yielding ASX shares, look no further than our “Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

 More reading

The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Travis Hoium, originally appeared on

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »