As reported by Sinovoltaics last March, the first Altman Z-Score was released on sinovoltaics.com which outlined the Asian PV manufacturers that are most likely to go into bankruptcy and which PV manufacturers will come out stronger.
Since March this year, the PV market has changed significantly with an emphasis on oversupply in Q3 and Q4.
The main cause for the oversupply is this year’s expansion amongst Asian manufacturers, which is equivalent to 18 gigawatts of solar module capacity and a sudden slowing down of demand in China caused by a cut in subsidies last June.
The present situation looks similar to the boom-bust cycle we saw back in late 2011, which resulted in a wave of consolidation as costs plunged and losses piled up.
When a photovoltaic company or manufacturer goes bankrupt, its performance and product warranties will be void. Valid warranties are very important for PV plant developers and PV project owners who want to ensure their project return of investment.
A product warranty is important to cover any issues or defects related to the solar module’s workmanship while a performance warranty is essential to have in place in case the solar modules degrade faster than expected and output is lower than anticipated. One solution to take care of bankruptcy risk is to purchase solar module warranty insurance.
How do solar companies assess the risk of going bankrupt without spending money for a complete study on their financial reports?
One proven way to predict if a PV manufacturer is going bankrupt or not within the next 2 years is through the Altman Z-Score. The Altman Z-Score is defined as the output of a credit-strength test that measures or gauges a publicly traded manufacturing company’s possibility of going bankrupt. This test is based on 5 financial ratios that can be calculated from the data found in the company’s annual 10k report. This test uses leverage, liquidity, profitability, solvency and activity to anticipate whether a company has a high probability of becoming broke.
The table below shows the Altman Z-Score of major and publicly listed Asian, American and European manufacturers at the end of Q3 of 2016.
The Chinese manufacturer DMEGC Solar Energy is leading the numbers with a score of 6.49, leaving behind all other PV manufacturers in the table. The Chinese solar company is part of the Hengdian Group DMEGC Magnetics Co. and has 1.6 gigawatts of solar cell manufacturing capacity, with 500 megawatts of water and 900 megawatts of module assembly capacity.
Other top ranking companies include the US-American First Solar, the Japanese company Kyocera and the Chinese firm Risen Energy – with the latter two garnering a higher Z-score as compared to 6 months ago.
Just like last March, Yingli still places at the very bottom with a score of -1.69. Any company that is ranked below a score of 1.1 is included in the “Distress Zone”, which means a company is likely to face closure and bankruptcy within the next 2 years. China Sunergy and Renesola are also in this zone.
Although Suntech shows a negative score at the Altman Z score table, according to Jess Christiansen, new marketing manager of Shunfeng International Clean Energy / Suntech Australia, Suntech is now owned by HKSE listed Shunfeng International Clean Energy as of 2014 and is not a listed company in its own right. It also means that the score will not apply since Suntech Power Holdings (stock code STPFQ) no longer exists and have been deregistered as of 2014.
Refer to these links for the Suntech delisted stock
https://www.bloomberg.com/quote/STPFQ:US
http://seekingalpha.com/symbol/STPFQ
SFCE currently owns a diverse portfolio in manufacturing and services that include electric vehicles, batteries, models, inverters, LED lighting,Nano tubes and hydrogen power thus, the photovoltaic manufacturer is in a very good and strong position.
While the Altman Z-Score is a reliable tool used to make adjustments to the financial shape of a photovoltaic manufacturer, there’s also more factors that can come into play in the aftermath of the bankruptcy of a company.
Click here to read the full story on Sinovoltaics and here to understand how the Altman z-Score is applied on Investopedia
Featured Image Credit: mjmonty