Imploding Suntech should see Final Closure with Asset Sale – Stockholders will get Nothing

Suntech has been the poster child of Chinese solar failure after the company stopped bond payments earlier this year and its top management was unceremoniously shown the door. Suntech has been the first major bankruptcy in China, as the companies do not usually fail in China’s state managed capitalist economy. The company had a massive debt of $2 billion, which it could not service due to the solar panel price crash. The company also made huge mistakes and invested large sums of money in a fraudulent Italian firm. The founder was ousted first, while the rest of the senior management also exited as China’s state owned firms and asset companies took over the management.

Read Suntech’s Stock up – Myths & Reality.

The company’s stock has been trading at above $1, thanks to a recovery in the solar industry fundamentals which have made multi-baggers of most solar stocks including Chinese ones in the recent days. However, it seems unlikely that the stockholders will get to see anything as the company’s combined assets are not equal to the huge debt burden. Shungfeng Photovoltaic which is a HK listed Chinese company has put in a bid for the company’s assets. There have been rumors that a number of other Chinese solar firms are trying to buy the bankrupt company’s solar assets. Note Suntech used to be the largest solar module shipper in 2009 and has multi gigawatt of solar cell, module and wafer capacity. However, the company’s equipment is older and its cost base is higher than of the other companies. Also prices of solar equipment these days are very cheap, thanks to the overcapacity and technology improvements. It is unlikely that Suntech will be able to sell its assets for $1 billion, let alone $2 billion. Conventional corporate finance would tell you that debt holders should have the seniority in restructuring with equity holders getting money after all the debt holders have been paid. I would not be on Suntech stock and would look to sell it at the current stock price, as I value the stock as Zero.

Read Will the Suntech Debt default bring sanity to the Solar Industry.