Suntech "technically insolvent"; Wuxi Government to step in


Bankruptcy rumors have been swirling all week around China’s Suntech, one of the world’s largest manufacturers of photovoltaic modules, ahead of its March 15 $541 million bond repayment deadline.

Expectations that help will come from China are mixed; in an industry note, Maxim Group said it believes the bondholders will file for involuntary bankruptcy today. It added that with $2.1billion in additional debt and "steep cash needs," Suntech is "technically insolvent."

Wuxi takeover

According to a representative from China’s Wuxi Municipal Government, who spoke to pv magazine in January, and correlating with various global media reports, the local government is prepared to take Suntech over, either wholly or partially. Maxim Group believes the manufacturing unit will be kept.

Backing this up, a Chinese module manufacturing insider and former industry analyst further told pv magazine that he sees the Wuxi government stepping in, in order to prevent significant job losses and to retain the production capacity it has helped establish in Wuxi. As such, he does not expect production capacity will disappear, even in a bankruptcy scenario.

He said, however, that a Suntech bankruptcy would be bad for the module companies, since banks and other investors would become more skeptical of established top-tier players.

Maxim Group added that "while a bailout – through a Wuxi SOE equity infusion/acquisition – could be at hand, this is likely to be targeted only at local employment and bank debt and not saving equity/bond holders."

It is not believed the Central Government will intervene. Bloomberg, quoting two advisors to government agencies, wrote that Suntech needs to "needs to retrench along with the rest of the industry." This ties in with its push for photovoltaic consolidation in its domestic industry.

Involuntary bankruptcy

Suntech announced the closing of a forbearance agreement with the holders of over 60% of its 3% convertible notes on March 11. As such, if Suntech fails to make the repayments, the aforementioned bondholders have said they will not exercise their rights under the notes until this May 15.

However, in the industry note issued by U.S.-based Maxim Group, an investment banking, securities and investment management firm, the company must have an agreement with 100% of its bondholders, if it wishes to defer payments. As such, if payment is not made today – and Suntech has said it will not pay up today – Maxim expects involuntary bankruptcy to be filed by the bondholders today.

And, while many believe the recent GSF fund settlement will free up cash for Suntech, Maxim does not agree.

Its investor note stated, "Though GSF has been held up as a beacon of hope for desperately-needed liquidity, we believe the vast majority of its 141 MW are effectively toxic assets that will be virtually impossible to sell given (a) a number of project LLCs under criminal investigation and associated with the local mafia and (b) reports from our contacts in Italy of many projects half-complete and raided."

Meanwhile, an industry insider working at one of the leading photovoltaic module manufacturers in China told pv magazine today that a Suntech bankruptcy filed in the U.S. would look good for the Chinese government (which just elected a new president yesterday), since it would show China’s commitment to the rules of a market economy.

For the moment, it is all just speculation, however. As such, it is a matter of watching and waiting to see how March 15 plays out for Suntech. According to Bloomberg New Energy Finance, the company’s U.S. shares fell $0.22, or 26.5%, yesterday morning, trading to $0.61.

As Maxim wrote in its industry note, Suntech’s "day of reckoning is nigh."