Shunfeng announces acquisition details

After two false starts, Chinese solar manufacturer Shunfeng today finally released details of its protracted takeover of Wuxi Suntech, ahead of a shareholder vote to approve the deal next month.

A look through the 208-page circular released to the Hong Kong Stock Exchange this morning instantly revealed where the ink was still freshest on the terms of the deal as one of the joint provisional liquidators of what is left of Suntech on Tuesday threatened to scupper what he described as the ‘purported‘ transfer of equity interests in Wuxi Suntech and subsidiaries in Japan and Singapore to the Jiangsu Shunfeng unit of Shunfeng Photovoltaic International.

Shunfeng is attempting to wash its hands of Wuxi Suntech’s heavily indebted Suntech Singapore subsidiary – which recently lost a judgment in the city state that awarded almost US$263 million to the Power Solar System (PSS) business that remains part of the rump Suntech Power Holdings company leftover after the sale of the main Wuxi manufacturing business.

At the same time, the would-be acquirers of Wuxi Suntech’s cell and module production lines are taking a very different approach to the ambition of Suntech Power Holdings joint liquidator John Ayres to prevent Shunfeng acquiring the full equity stake in Suntech’s rather-more-profitable Suntech Power Japan business.

The detailed Shunfeng circular stated the company would resist any move to void the transfer of the Japanese business as part of the acquisition on the basis the PSS business that sold it was insolvent at the time and, therefore, unable to transact such a deal under the laws of the British Virgin Islands Caribbean tax haven where PSS is registered.

Figures that reveal Suntech Japan had net assets of RMB294 million (US$47 million) at the end of September – when Shunfeng’s acquisition-linked restructure was finalized – and revenues of RMB484 million, amounting to 24.21% of Wuxi Suntech’s total income in Q1-Q3 last year, show just why Shunfeng is so keen to hang on to the unit.

Shunfeng claims to have sold off Singapore holding

Shunfeng claims, however, it reached an agreement with an unnamed ‘independent third party’ on February 12 to dispose of Wuxi Suntech’s entire shareholding in the debt-saddled Singapore Suntech business that Wuxi Suntech acquired before Shunfeng tabled its takeover bid.

Shunfeng’s claim that such a move would reduce Wuxi Suntech’s total liabilities from RMB17.1 billion to RMB3.5 billion illustrates why the rval manufacturer is trying to wash its hands of the troubled Singapore unit.

The questions surrounding the Japanese and Singaporean businesses could complicate the shareholder vote which Shunfeng has arranged to hold on Monday April 7, in Changzhou city in the Chinese province of Jiangsu.

The nuts and bolts of the deal stipulate that, if approved, Shunfeng will pay RMB3 billion in cash for Wuxi Suntech and its subsidairies and will inject a further RMB3 billion within two years to upgrade fixed assets and bolster working capital.

Shunfeng will also settle Wuxi Suntech liabilities that stood at RMB10.8 billion at the end of September as well as supplying a further RMB10 million, if needed, with any outstanding monies owed above that to be the liability of the restructured Wuxi Suntech business.

Government assistance

Shunfeng also indicated the Wuxi Municipal People’s Government or the New District Committee – which today signed a solar rooftop development deal with Hanwha SolarOne – may pay for any remaining Wuxi Suntech losses ‘through government support.’

The acquisition money has already been handed over, at the request of the Wuxi Suntech administrator, in the form of a non-refundable RMB500 million deposit by Shunfeng and with the RMB2.5 billion balance settled on December 19 by a ‘Mr Cheng’ and his Peace Link Services subsidiary.

Mr Cheng, thought to be property magnate Cheng Kin-Ming, has a lot riding on the shareholder vote with Shunfeng having stated it is not liable for the balance if the acquisition fails to win approval. Cheng funded the deal in return for a 68% shareholding in the enlarged company.

The early payment means, according to Shunfeng, the RMB164,414 owed Wuxi Suntech employees has been paid in full along with the RMB43.7 million owed to the Wuxi tax authorities and RMB79.8 million owed secured creditors.

Some RMB9.4 billion owed unsecured creditors has been ‘mostly’ paid, according to Shunfeng, with an outstanding RMB1.3 billion still to be settled after verification by the administrator or Wuxi Suntech.

30% for unsecured creditors

Unsecured creditors will have the first RMB100,000 of their debts paid in full and then face the choice of receiving either 31.55% of any remainder in cash or 30.85% in cash and RMB0.94 in every RMB100 as ‘debt receivables’ from Wuxi Suntech.

Shunfeng plans to finance the acquisition with a HK$3.58 billion (US$461 million) bonds issue and aknowledges it will then face a RMB7.9 billion deficit for the 12 months after the acquisition.

The board is convinced the huge outlay is worthwhile to acquire Wuxi Suntech’s 1.6 GW cell production and 2 GW module production lines together with a further 260 MW capacity in Luoyang as part of the Luoyang Suntech subsidiary in which Wuxi Suntech has increased its shareholding to full control by paying Lan Qin and Chai Huan a total RMB33.8 million for their 4.8% and 4% holdings, respectively.

The accounts show the Wuxi production lines manufactured only 608 MW of cells and 1.2 GW of modules in 2012, falling to no cell output and only 763 MW of module production as Suntech suffered the after-effects of its very public meltdown in 2013.

Production of cells restarted in Wuxi in December with 31 MW manufactured to the end of last month and module manufacture restarted in January, with 151 MW made by the end of February. The Luoyang facility suffered no interruption to operations.

Whether Wuxi Suntech, and its prospective new owners, can bank on continuing to benefit from Suntech Power Japan’s specialized 4 MW module production plant in Nagano, however, remains to be seen.