Suntech exec chair swap branded "misconceived and unlawful"

Predictions that Suntech could reach "breaking point" this year may turn into reality. In the latest scandal to hit one of the world’s biggest photovoltaic module manufacturers, Suntech founder and former CEO, Zhengrong Shi claims his replacement by Susan Wang as executive chair of Suntech’s board of directors, is "misconceived and unlawful".

In a statement issued by Shi last night, it appears that the company director and chief strategy officer (CSO) is more than a little disgruntled at being swapped with Wang, who has been a director at Suntech since 2009.

"The decision was invalid and of no effect. The actions taken at this time by the rest of the Board show that they are not focused on the issues most important at hand and are not acting in accordance with the best interest of the Company," stated Shi, adding, "I will take all steps necessary to protect the Company from being harmed by unlawful actions such as the above. 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."

The Wall Street Journal (WSJ) further quoted him as saying, "As the founder, largest shareholder and director, I will do everything to save the company." Shi is believed to own 29% of Suntech’s shares.

In response to the claims that Wang’s appointment was unlawful, Suntech has reportedly issued a statement saying its decision "is valid and effective under the law of the Cayman Islands, the country of the Company’s incorporation."

Refinancing

Bloomberg quotes Shi as being "shocked" by the decision, and said that he has been excluded from board meetings for the last month. Shi added that Suntech has no plan to refinance the $541 million bond, due on March 15. According to the WSJ, however, the company is said to be in talks with international investors.

"The problem is they don’t have a solution," Shi further told Bloomberg. "They need a viable business plan. They need to talk to all the bondholders and suppliers and government. All the stakeholders want to talk to me. All the bank CEOs want to talk to me. They want to know why Dr. Shi didn’t show up."

Nitin Kumar, an analyst at Nomura Singapore Ltd, further told the news agency that Suntech appears to be "preparing for ceding control to a third party." He added, "Management change at Suntech was sorely needed given the execution missteps over the last five to six years."

Last October, Suntech announced that it had taken UBS Investment Bank onboard to help with its debt. According to the New York Times last October, analysts place Suntech’s debt at $2.3 billion.

Rocky road

2012 was a tumultuous year for Suntech to say the least, particularly in view of the uphill struggle it faced following 2011 losses of more than $1 billion.

In addition to falling financials throughout 2012, the U.S. decision to apply tariffs to Chinese photovoltaic module imports impacted the company, and led it to reduce module production by over 30% at its facility located in Arizona in November. Prior to this, it temporarily reduced its cell production capacity in Wuxi, China, thus affecting around 1,500 employees.

Meanwhile during the Global Solar Fund, S.C.A., Sicar (GSF) fraud scandal, which is still ongoing, and which saw the launching of several class action lawsuits, Shi announced that he would step down as CEO, to be replaced by David King. Anlin Ting-Mason also stepped down as interim CFO, meaning King had to also take up the position of acting CFO.

Suntech is still to issue its Q4 and FY 2012 financial results. The delay has been prompted by the investigation into a €560 million security interest received from GSF Capital.

At the last stand, in December, Suntech said that it had "recently come to the conclusion that the security interest does not exist and that it has been the victim of a fraud by others. As a result, with respect to the guarantee that Suntech provided to lenders to a GSF project company in 2010, the Company is required to record a guarantee obligation in the range of $60 million to $80 million, which is an increase from the prior guarantee obligation of $3 million."

It added that the Public Prosecutor of Brindisi, Italy has brought charges against certain officers of GSF subsidiaries for reportedly failing to comply with necessary permitting process and building regulations for 12.7 MW of photovoltaic plants in Italy. "Investigations into a further 7.9MW of GSF-owned PV plants are also pending, but have not yet resulted in any charges being brought," said Suntech.

It added, "Accordingly, Suntech’s Audit Committee of the Board of Directors and the management team have concluded that Suntech’s interim condensed financial information for 2010, 2011 and first quarter 2012, and its annual consolidated financial statements for 2010 and 2011 together with the accompanying reports of Suntech’s independent registered accounting firm for 2010 and 2011 should not be relied upon by investors."