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Where Has Yingli Solar’s Inorganic Growth Come From?

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Yingli Solar’s Cyber Power acquisition

A significant portion of Yingli Solar’s (YGE) capital expenditure is confined to China (FXI). The company’s solar module manufacturing units are in China and Taiwan, but the company’s investment in its global distribution network helped to cater the demand across its operating geographies.

On January 7, 2009, Yingli Solar announced the completion of the acquisition of Cyber Power, a development-stage enterprise with plans to begin production of solar-grade polysilicon in China. Cyber Power was operating through its principal subsidiary, Fine Silicon.

According to company filings, the acquisition was funded partly through available cash and partly through the issue of senior secured convertible notes that were due in 2012.

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Outcome of the acquisition

Fine Silicon started its trial run in late 2009 with an expected production capacity of 3,000 tons of polysilicon per year. However, the sharp fall in polysilicon prices in recent years made Fine Silicon’s designed production capacity no longer cost-effective. As a result, Yingli Solar (TAN) recorded the total value of Fine Silicon’s equipment as a non-cash impairment of the long-lived assets over the years.

Capital expenditure

Unlike SunEdison (SUNEQ), Yingli Solar’s growth was primarily driven by the organic expansion of its manufacturing capacity. However, the company’s expansion was mainly funded by external borrowings and was highly leveraged. The sharp fall in PV module prices resulted in underutilization of Yingli Solar’s manufacturing capacity and increased its fixed costs over the years. As a result, the company consistently decreased its capital expenditure over the last five years. In 2015, Yingli Solar reported the lowest ever spending of $37 million on the purchase of plant, property, and equipment.

The upstream solar industry is a capital-intensive business. Incumbent players like Yingli Solar, Trina Solar (TSL), First Solar (FSLR), and Canadian Solar (CSIQ) are required to spend huge amounts of capital upfront in order to continue their growth.

Now let’s look at Yingli Solar’s service and product suite.

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