In a statement to the Hong Kong Stock Exchange on Friday night, Changzhou-based Shunfeng announced that it has agreed to pay RMB3 billion (US$493 million) to wholly acquire the bankrupt main manufacturing unit of former solar giant Suntech.
On top of that fee, Shunfeng agreed to a payment of US$25 million to the Wuxi Guolian investment vehicle owned by the Wuxi local authorities within three months of the acquisition being completed.
Wuxi Guolian last week pledged to invest $150 million into Suntech’s U.S.-registered parent company which Shunfeng will not acquire as part of the Wuxi Suntech deal to try and stave off holders of around US$1.6 million of bonds in the parent company who are trying to force it into involuntary bankruptcy, a move that could cause complications for the Shunfeng deal.
The costs for Shunfeng do not stop at the sale price and the support for Wuxi Guolian, however, with Shunfeng also agreeing to cover up to RMB20 million per month for the period between March 20 and October 31, a total liability of up to RMB145 million.
Deal would give Shunfeng 3.6 GW manufacturing capacity
In return for the cash, the deal which has to be approved by Shunfeng shareholders, the local authorities and the extensive list of Wuxi Suntech creditors would present Shunfeng with two Wuxi manufacturing facilities which could bring 3.6 GW of annual cell and module production capacity as Shunfeng continues its expansion into the downstream business in China.
Wuxi Suntech, which went bankrupt on March 20, had three production lines in the coastal city but one of its two cell production facilities is disused and loaded with obsolete equipment.
A second 1.6 GW cell production line has been idle since August 2012 with Shunfeng stating it could be restored to a 1.2 GW annual production rate.
Of the two production lines in Wuxi Suntech’s module manufacturing facility, a 1.4 GW line is operating normally with a smaller 1 GW line idle since November 2012.
Acquisition needs approval from three bodies
The acquisition will have to be approved by Shunfeng shareholders, with the company’s stock market announcement describing the deal as good business to expand production in support of Shunfeng’s downstream activity as well as extending the company’s market share. Shunfeng said details of the extraordinary general meeting for shareholders to vote on the acquisition, would be released by February 20.
In a line from the Shunfeng statement that will add grist to the mill of European manufacturers pressing for anti susbidy duties in the EU, shareholders were again told of the Chinese government’s latest five-year plan which indicates ‘more national support will be provided to the PV industry’ as well as noting that, after talks with lenders, Shunfeng does not expect to need any further capital raising exercise to fund the acquisition.
The deal would also depend on approval of Shunfeng’s restructuring proposals by the Wuxi Intermediate People’s Court and, more importantly, of approval of the plan by creditors who may be facing a much-reduced settlement of their outstanding payments.
The administrator of Wuxi Suntech’s bankruptcy proceedings has stated the RMB3 billion acquisition fee will be used to pay bankruptcy costs, creditors registered with the administrator and any further unregistered creditors which can be verified by the administrator.
Shares in Jiangsu Shunfeng, suspended since news of the potential acquisition broke on October 24, resumed trading in Hong Kong this morning.
Media outlets have pointed out real estate magnate Cheng Kin Ming is strengthening his position in Chinese solar through the high profile deal.
Cheng is reported to hold a 30% stake in Jiangsu Shunfeng’s Shunfeng Photovoltaic parent company with enough debt to become majority owner, if converted, as well as a 25% stake in debt laden wafer manufacturer LDK Solar.