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March 21, 2013Suntech Debt Default
Suntech (STP) which is one of the worst managed solar companies in the industry has been going through tumultuous times after it got entangled in a multi-million dollar fraud and firing its chairman and founder Zhengrong shi. The company now has defaulted on $541 million convertible debt, which came up for redemption on 15th March 2013. The company had only negotiated with 60% of the bond holders for extension of debt repayment. While a debt default means automatic bankruptcy in the West as debt holders try to get their money back, it is not as simple in emerging markets like India and China. The debt holders will have to go through the torturous legal proceedings before they can get some, if any of their money back. Note Suzlon had defaulted on its foreign currency debt some time ago but the company still continues.
Will Sutech default help the broader Solar Industry
The solar industry is caught in a vicious downturn, as supply far exceeds capacity through the supply chain. Despite fast growing global demand, prices of solar panels have kept on going down and solar companies have bled billions of dollars. Even the lowest cost players such as GCL Poly are losing money as prices have gone far below the actual costs. The oversupply is not getting removed due to government bailouts and support. This has made the whole industry sick and until the supply demand balance happens, new investments and research has been put on hold. Suntech will be the first bond default in China and nobody knows how it will play out.
No benefit if Wuxi Government bails out Suntech
The solar industry will not benefit if the Wuxi government bailouts out Suntech (at least the factories part). This will mean that the Suntech’s ~2 GW of capacity will continue to run and set a bad precedence for the rest of the big money losing Chinese solar companies.
Big benefit if Suntech is allowed to go down
The solar industry will benefit hugely if Suntech is allowed to go down. LDK Solar another big solar company continues to receive millions of dollars in equity and debt from Chinese banks and government controlled entities. We think that Suntech will also get some sort of bailout in the end, as the local government cannot allow the loss of more than 10,000 Suntech jobs. While central government officials have indicated that they will not give any more monetary help to Suntech, the local and provincial governments have refused to toe the central line in the past.
Suntech, one of the world’s biggest solar panel manufacturers, said Monday it has defaulted on a $541 million bond payment. It’s the latest sign of the financial squeeze on the struggling global solar industry.
Suntech Power’s announcement was a severe setback for a company lauded by China’s Communist government as a leader of efforts to make the country a center of the renewable energy industry. Its founder, Shi Zhengrong, became one of the industry’s most prominent entrepreneurs and a billionaire, only to see most of his fortune evaporate as the company’s share price plummeted.
The company is “exploring strategic alternatives with lenders and potential investors,” David King, who replaced Shi as a CEO last year, said in a statement.