Five Energy Stocks At Biggest Risk From The Evergrande Implosion
Default fears have continued to stalk the China Evergrande Group despite efforts by its Chairperson, Xu Jiayin, to lift confidence in the embattled real-estate development firm, posing risk to five Energy Stocks.
The Evergrande Group, one of China’s biggest real-estate developers, owes $305 billion to a number of lenders, with its interest liabilities rising by an average of $28 million daily.
The biggest decliners in the solar sector were JinkoSolar (-10.2%), Daqo New Energy Corp (-9.1%), Sunworks, Inc (-8.9%), Maxeon Solar Technologies, Ltd (-8.9%), and First Solar (-8.4%).
A major test for Evergrande comes this week, with the firm due to pay $83.5 million in interest to bondholders relating to its March 2022 bond on Thursday, and another $47.5 million payment due on Sept. 29 for March 2024 notes.
Analysts have mostly played down the threat of Evergrande’s troubles becoming the country’s “Lehman moment,” with Beijing so far remaining quiet as one of the country’s worst corporate snafus in modern history unfolds.
The million-dollar question at this point is whether the Chinese government will intervene and bail out the giant property developer should it begin to default on its mounting debt.
According to S&P analysts, Beijing is likely to remain on the sidelines unless there is risk of “far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy.”
The analysts say the Chinese banking sector is capable of digesting an Evergrande default “with no significant disruption.”
Deutsche Bank’s Jim Reid reiterates that position saying there are no domestic signs of contagion yet, while Barclays’ Ajay Rajadhyaksha says the business model of Chinese property firms is generally sound and that Evergrande is in worse shape than most, both in terms of leverage and its business model.
But those reassurances have not stopped jitters about the spillover risks of a messy collapse roiling the markets.
Solar names have emerged as some worst-hit among the many sectors feeling the heat from growing contagion fears.
The Invesco Solar Portfolio ETF fell as much as 6.5% on Monday, the most since early May, compared to a more tame 1.7% fall by the S&P 500.
One of the biggest trends that has been driving the phenomenal growth being witnessed in the renewable energy sector is falling costs. And nowhere has this been more evident than the solar sector.
Indeed, solar photovoltaics (PV) has seen the sharpest cost decline of any electricity technology over the last decade, with the International Renewable Energy Agency (IRENA) finding that between 2010-2019, the cost of solar PV globally dropped by 82%. But that bullish thesis is now in grave danger.
According to a new report by the Solar Energy Industries Association and Wood Mackenzie, supply chain bottlenecks and rising raw materials costs have hit the U.S. solar industry, as solar prices rose Q/Q and Y/Y during Q2 across every U.S. market segment.
This marks the first time that residential, commercial, and utility solar costs have increased together since Wood Mackenzie began tracking prices in 2014. The most significant cost pressures came from rising prices for raw materials, including steel and aluminium.
Solar Energy Industries Association (SEIA) President and CEO Abigail Ross Hopper has warned that “price increases, supply chain disruptions and a series of trade risks are threatening our ability to decarbonize the electric grid.”
Nevertheless, the supply chain bottlenecks might only be mere speed bumps: The U.S. added 5.7 GW of solar capacity during Q2 for a 45% surge over 2020 levels that were held down by Covid-19.