Suntech acquisition could cost almost $1 billion

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With Chinese cell and module producer Shunfeng Photovoltaic suspending trading in its shares yesterday ‘pending the release of an announcement in relation to the proposed acquisition by the company’, its planned takeover of Wuxi Suntech could be a costly one.

Reuters is today quoting an anonymous source close to the deal who expects Shunfeng to put CNY3 billion (US$493 million) into Suntech’s insolvent main Chinese manufacturing unit with a further CNY2 billion-3 billion to follow to maintain operations.

Shunfeng completed a $142 million share issue on Tuesday to back the proposed acquisition by its Jiangsu Shunfeng subsidiary – together with the Wuxi Guolian Group investment arm of the Wuxi local government – of Wuxi Suntech.

The Reuters source says Wuxi Suntech creditors will vote on the buyers’ proposed restructuring of the unit and its reported $1.75 billion debt pile at a meeting set for mid-November with analysts expecting creditors to get a fraction of what they are owed by Suntech under the deal.

A second anonymous source quoted by Reuters indicated a minimum price of CNY2.5 billion had been set by the administrator for the failed Suntech unit.

It is not clear how the proposed deal, described by Shunfeng in a submission to the Hong Kong Stock Exchange as constituting ‘a very substantial acquisition of the company’ would be affected by an attempt – reported in the Wall Street Journal last week – by U.S. creditors holding bonds worth more than $578,000 to force Suntech into involuntary bankruptcy proceedings in the U.S.

In what could prove a complicated acquisition, it is unclear how much of the proposed takeover would be financed by Chinese lenders after global stock markets wobbled this week on fears Chinese banks are preparing to tighten lending and treble the amount of bad debts they report.