Suntech, China

The world’s largest solar panel company in 2011 now faces possible closure as it does not have money to pay the convertible bond due in March 2013. Suntech has been one of the worst managed solar companies despite its initial advantage and size. The company has made numerous mistakes over the years. The company founded by Zhengrong Shi is now facing the moment of truth with a massive >$500 million debt repayment due in March. The company which has been making losses for the last 2 years, does not have money to pay the debt. Despite hiring UBS to help, the investment bank has not done anything much except take the fees. The problem is simply too big to be solved. The Board seems to have unceremoniously ousted Shi from the post of the chairman (should have been done a long time ago). Shi has been protesting this ouster and terming it illegal.

Read more about Suntech Solar Panels Review.

On top of this management fight, one of its top lenders Bank of China has sued Suntech to get its money back. Another Chinese solar company LDK Solar which has the same debt problems has been selling itself piecemeal to Chinese quasi state owned companies to stay afloat. Both Suntech and LDK have been bankrupt for more than a year now, but in China’s convoluted capitalist system, are still running. We think that Suntech too will continue in some shape or form in the future given the thousands of people it employs. However, shareholders might not get a single penny back as the government completely takes over this bankrupt firm. Suntech stock has underperformed the rest of the sector as its debt problems are more acute than the rest.

Read on GWI China Solar Booming.

For people holding the convertible debt, the most likely scenario is that they will either get nothing or pennies for a dollar. As most of this debt is held by non-Chinese nationals, the government has little incentive to bail them out. The company will mostly be mired in debt and management tussle for a long time. It is hardly an ideal situation when solar companies are fighting hard to just stay afloat.

List of Suntech Mistakes:

Suntech was the biggest solar panel supplier in 2011 shipping almost 2000 MW of solar modules to various countries around the globe. Suntech, which is also one of the oldest Chinese solar companies has been the biggest solar panel manufacturer in China in the recent past despite losing marketshare to other Chinese companies like Trina Solar, Canadian Solar and others. Though most of solar share prices have crashed in the last year by 80-90%, from their peaks, Suntech’s share price fell sharply from its all time low and settled below a dollar, after it was revealed that the company failed to do due diligence on hundreds of millions of dollars in German Government bonds. This is not the first time that the company’s management led by Dr Shi has made a mistake. In fact, the company has a long history of strategic and tactical mistakes.

a) Signing a number of long term polysilicon and wafer supply agreements paying huge amounts as prepayment when polysilicon prices were at a historical high. Many of these prepayments and investments had to be written down as the smaller suppliers went bankrupt and the polysilicon prices crashed resulting in renegotiation which resulted in additional payments.

b) In R&D, despite promise of a game changing technology Pluto, the company could never really come up with the goods. Suntech’s solar cell efficiency is no better than its competitors like Trina, Yingli and others.

c) Making costly investments into thin film technology which had to be written off as well.

d) Bad capital structure with too much debt has resulted in the company being potentially insolvent now with the more than $500 million being expected to be the amount of fraud.

e) The company started to vertically integrate into wafers and ingots exactly at the wrong time when wafer prices started to crash. This wasted additional hundreds of millions of dollars.

Suntech’s management is the worst amongst the Chinese solar companies given the number of mistakes it has made till date despite the initial mover advantage, plus the strong support from the Chinese Government it enjoys. The company has so much debt and its business model, is in such a dire shape that only a Government bailout can keep the company alive. Like LDK Solar, Suntech is now dependent on the benevolence of the Chinese Government and its banks. The company’s convertible bond prices have crashed to 40cents a dollar indicating the company’s precarious shape.

Bloomberg

Settling the legal dispute lets Suntech focus on its larger issue, finding a way to pay the convertible bond that matures March 15, according to Pavel Molchanov, analyst at Raymond James & Associates Inc. in Houston. The agreement is a “small bit of good news” for the company, Molchanov said in an interview. It’s overshadowed by the “real problem for Suntech, which awaits when their convertible debt comes due.” Suntech “doesn’t have anywhere near the amount of cash to pay that” and is “functionally insolvent by Western standards,” Molchanov said. Suntech said in July it had uncovered potential irregularities in a fund managed by Romero, Global Solar Fund S.C.A., as it sought to sell its stake in the venture. GSF Capital had pledged German bonds worth 560 million euros ($734 million) as collateral for financing guarantees from Suntech. Those bonds may have never existed, Suntech said.

WSJ

Suntech Power Holdings Co. Ltd. (STP, K3ND.SG) founder and former chief executive Zhengrong Shi said Tuesday he would fight a decision by the company’s board to replace him as chairman of the company. “The board’s decision to purportedly remove me was misconceived and unlawful,” Mr. Shi said in a statement. “I am fully committed to continuing to serve the company as Executive Chairman to the best of my ability and to guide it through these difficult times.” Suntech said Monday the board had appointed Susan Wang as chairwoman of the company, effective immediately, and that Ms. Wang had replaced Mr. Shi. Mr. Shi stepped down as chief executive of the company last August, but had remained as executive chairman and became the company’s chief strategy officer.