Former World’s Biggest Solar Panel Maker Suntech Seen Not Getting Bailout From Chinese Government; Wall Street May Lose in $541 Million Suntech Bond Default

Suntech Seen Not Getting Bailout From Chinese Government

China won’t rescue Suntech Power Holdings Co. (STP) from its creditors because the former biggest solar-panel maker needs to retrench along with the rest of the industry, two advisers to government agencies said. Officials in Beijing want to pare excess manufacturing capacity and consolidate the $25 billion global industry that’s led by China, said Li Junfeng, director of the climate-change strategic research division at the government’s National Development and Reform Commission. “The government won’t intervene and shouldn’t,” Li said in an interview. Meng Xiangan, vice chairman of the China Renewable Energy Society, a liaison between the industry and the state, said Suntech should “not rely on government assistance.”

The comments from advisers with knowledge of the Chinese government’s thinking cast doubt on whether Suntech, the largest solar panel manufacturer in 2011, can avoid bankruptcy. The company March 11 said it obtained an agreement from more than 60 percent of bond holders to delay repayment for two months on $541 million of notes due tomorrow. The national government wants to avoid a default, which would be the first for a bond issued by a company based in mainland China. Restructuring the solar industry is one of the first issues confronting Premier Li Keqiang as his administration takes over from Wen Jiabao this month.

Bankruptcy Risk

Suntech’s best course would be to “file for bankruptcy for some assets and let a state-owned power enter to protect certain interests,” Meng said. “The entire company won’t go bankrupt. Its brand will remain alive.”

Two calls to Suntech’s Wuxi headquarters in Jiangsu province and an e-mail to a company spokesman went unanswered after regular business hours. Walker Frost, a spokesman for the company in San Francisco, declined to comment.

The New York Times yesterday reported that Suntech is close to be taken over partially or entirely by Wuxi Guolian Development Group Co., a holding company part-owned by the municipal government. The newspaper cited solar-industry executives who it didn’t name and an unidentified person who answered the phone at Wuxi Guolian.

Suntech executives are negotiating with bondholders about how to restructure payments on the $541 million of notes that are convertible into shares as soon as tomorrow.

Local Support

The company is also in talks with the government of Wuxi about financial assistance, though it’s not clear how much support the local authority is prepared to give. Suntech got a $32 million loan from Wuxi in September. In November, LDK Solar Co. (LDK), China’s second-biggest supplier of wafers for solar cells in 2011, sold a 19.9 percent stake for about $21.8 million to Heng Rui Xin Energy Co., which is partly owned by the Xinyu government, where it has a factory.

“The question is what kind of bailout Wuxi officials can swing,” said Melanie Hart, a policy analyst at the Center for American Progress in Washington. “If the bailout isn’t backed by a big state bank, it may be only partial. China Development Bank represents Beijing, not Wuxi, and Beijing is more concerned with developing the industry as a whole than it is with saving companies. We should not underestimate its ability to take a pass on a deal that it sees as a bad bet.”

Shares of Suntech fell 24 percent to 83 cents at the close in New York yesterday, the lowest since Nov. 26, giving the company a market value of $149.5 million.

Solar Boom

China in the past three years wrested leadership over solar manufacturing away from German and Japanese companies, extending cheaper loans and cutting prices more quickly. That led to production capacity more than doubling at each of its top five panel manufactures.

That expansion supported a surge in installations of photovoltaics to 30 gigawatts last year from 7.7 gigawatts in 2009, according to Bloomberg New Energy Finance. The cost of solar cell prices has plunged 72 percent over the same period, including a 20 percent drop in 2012, widening losses at Chinese solar companies.

Suntech, LDK, Trina Solar Ltd. (TSL), Yingli Green Energy Holding Co. (YGE), Hanwha SolarOne Co. (HSOL) and Jinko Solar Holding Co. were among 12 companies that obtained more than $43.2 billion in credit pledges from China Development Bank Corp., according to data compiled by Bloomberg.

Shares of Suntech have fallen 35 percent since March 4 after the board ousted founder Shi Zhengrong as chairman. The Chinese analysts said that government funding for the solar industry helped cause the problems.

Government Blamed

Suntech’s distress “was due to the governmental intervention,” Li of the NRDC, China’s top economic planning agency, said in a phone interview in Beijing late yesterday.

China reiterated it plans to promote consolidation among solar companies in December. Suntech was the world’s biggest panel maker in 2011 with shipments of 2.1 gigawatts and was tied with First Solar Inc. (FSLR) by factory capacity. It expects 2012 shipments to slip to 1.7 gigawatts to 1.8 gigawatts.

The solar panel glut is the result of “overheated investment motivated by local governments that were keen on economic growth in the past when we started developing the photovoltaic business,” Meng said. “Suntech should mainly depend on its own efforts to overcome the difficulties.”

Revenue Decline

Suntech’s market value slumped 72 percent in the past year after losses of $646 million in the four quarters through March 2012. The company hasn’t released any financial reports since, after announcing in July that it may have been the victim of fraud involving 560 million euros ($726 million) of German bonds that may have never existed.

Revenue dropped 18 percent to $387 million in the third quarter as shipments of photovoltaics dropped 10 percent, Suntech said on Dec. 7, when it published preliminary results. It said it expected a “slightly negative” gross margin, without giving more details.

Meng of the Renewable Energy Society said the glut is the result of excess support from authorities, who are seeking to create jobs.

“If companies can’t survive, even if they are saved, it’s useless,” Meng said. “Our policy is very clear to encourage mergers and acquisitions. Both state- and privately-owned entities can restructure or acquire each other. Restructuring or mergers and acquisitions are in line with what the central government requires.”

Suntech said 60 percent of bondholders have agreed to the forbearance. Some of the remaining 40 percent of bondholders said they weren’t contacted about a forbearance and want to be paid on schedule tomorrow. The company may not be able to delay the bond payments, said Adam Cohen, the founder of Covenant Review, a research firm in New York.

The bondholders have an “absolute right” to be repaid the principal when the bonds mature, Cohen said in an interview March 12. “It doesn’t matter that a majority or 60 percent wants to wait 60 days.”

To contact the reporters on this story: Feifei Shen in Beijing at fshen11@bloomberg.net; Ehren Goossens in New York at egoossens1@bloomberg.net

Wall Street May Lose in $541 Million Suntech Bond Default

By Ehren Goossens – Mar 13, 2013

Five Wall Street investment and hedge funds have the most to lose as China’s Suntech Power Holdings Co. (STP) seeks more time to repay $541 million of convertible debt.

Mount Kellett Capital Management LP, Driehaus Capital Management LLC, Pioneer Investment Management Inc., Silverback Asset Management LLC and Susquehanna International Group LLP owned about 32 percent of the debt, according to December public filings compiled by Bloomberg. The Wuxi-based company that was once the world’s biggest solar panel maker said March 11 that more than 60 percent of holders had agreed to extend the repayment date to May 15 from March 15.

Global demand for solar panels has slowed as government support waned, driving prices down 20 percent in 2012 and prompting losses at the Chinese manufacturers that make up the majority of the 17-member Bloomberg Global Large Solar Energy index. Government agencies andChina Development Bank Corp. have provided support to at least two struggling solar companies this year, averting the Asian nation’s first onshore bond default.

Investing in Suntech is “a speculative bid that the government will rescue the company,” said Noel Hebert, chief investment officer in Bethlehem, Pennsylvania-based Concannon Wealth Management, which oversees about $250 million and doesn’t own Suntech debt. In a restructuring, bondholders “don’t have much of a chance at recovery,” he added.

Suntech is “working to find a resolution,” Chief Executive Officer David King said in the March 11 statement, which didn’t explain how Suntech will meet the new deadline or why it lacks 100 percent support. The company said yesterday it will stop production at its Goodyear, Arizona, plant in April.

Bondholders Surprised

Colin Peterson, who said he is a bondholder through his distressed debt-focused hedge fund Trondheim Capital Partners LP in Scottsdale, Arizona, said he wasn’t aware of the forbearance agreement until it was announced.

“We were a little surprised to see that they pushed back this bond maturity,” he said in an interview. “We’re not aware of any way they can do that.”

The bonds fell 2.4 percent to 30.25 cents on the dollar yesterday, according to Trace, the reporting system of the Financial Industry Regulatory Authority. They rallied from a 12- month low of 25.1 cents on Dec. 6 to 56 on Jan. 9. The American depositary receipts fell 5.2 percent to $1.09 in New York.

Bond Default

The forbearance agreement is still “tantamount to a default” since the notes aren’t being paid as agreed, according to Vicki Bryan, an analyst at Gimme Credit LLC in New York. Bondholders may have few options besides granting the extension given Suntech’s debt load, she said.

Shi Zhengrong, the former chairman, said March 5 the company has no plan in place to pay the debt. Susan Wang, formerly the chief financial officer of the electronics manufacturing company Solectron Corp., replaced Shi last week. Shi founded Suntech in 2001 after earning a doctorate in electrical engineering from Australia’s University of New South Wales and serving as executive director of Pacific Solar Pty. in Sydney. Suntech was the world’s biggest solar-panel company in 2011 with shipments of 2.1 gigawatts.

The company’s market value slumped 60 percent in the past year to $196 million after losses of $646 million in the four quarters through March 2012. The company hasn’t released any financial reports since, after announcing in July that it may have been the victim of fraud involving 560 million euros ($734 million) of German bonds that may have never existed.

Suntech had about $2 billion of debt as of the end of August, according to a bondholder presentation in November filed with the Securities and Exchange Commission.

Local Government

The company is talking with Wuxi’s government about aid. Wuxi Suntech Power Co., a unit of Suntech Power Holdings Co., may seek bankruptcy protection by March 20 and sell a stake to state-owned Wuxi Guolian Development (Group) Co., the China Business Journal reported, citing a person it didn’t identify.

Mount Kellett owns 12 percent of the bond, according to data compiled by Bloomberg. Daniel Gagnier, a spokesman, declined to comment. Spokesmen for Driehaus, Pioneer, Silverback and Susquehanna didn’t respond to interview requests. It’s not clear at what price the funds bought the debt or whether their holdings have changed this year.

“The Wuxi government may be driven to save some of the local assets owned by Suntech, while they won’t rescue the entire listed company which mainly involves overseas investors,” said Wang Haisheng, a Shanghai-based analyst at Minsheng Securities Co. “The government is more prone to spin off the assets.”

While the location of the debt outside of China reduces bondholders’ claims to onshore assets and limits their leverage, it also attracts publicity to any default, said Charles Yonts, an energy analyst at CLSA Ltd. in Hong Kong.

Haircut Only

The most likely scenario is “that convertible bond holders take some sort of haircut,” he said. “I don’t think that Suntech would be a top choice as a potential company to fail, given the high domestic and global profile.”

China may become the largest market for solar panels this year as the global market grows 14 percent to install 34.1 gigawatts, according to analysts surveyed by Bloomberg.

Other Chinese solar companies are getting state aid as air pollution reaches hazardous levels in major cities. LDK Solar Co. (LDK), the second-biggest maker of wafers, said Jan. 31 that it received approval for a 440 million yuan ($70.8 million) loan from state-owned China Development Bank Corp.

LDK is safer than Suntech after selling stakes and securing loans from China Development Bank, said Lian Rui, a Beijing- based analyst at research company NPD Solarbuzz, adding that its board, investors and government backers are “more united.”

Deadlines Met

Shanghai Chaori Solar Energy Science & Technology Co. (002506) enlisted China Securities Depository & Clearing to help it make an interest payment to bond investors March 3. Its 1 billion- yuan bond is due in 2017.

No company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s, according to Moody’s Investors Service. The yield on five-year corporate bonds rated AA- dropped nine basis points this month to 6.29 percent, according to Chinabond. The rate on similar-maturity government notes was little changed at 3.29 percent. The gap between the two yields is 300, the lowest since June 2011.

China Economy

Confidence in China’s economy is improving. Five-year credit-default swaps protecting sovereign notes against non- payment fell five basis points last month to 64 as of Feb. 28 in New York and was recently at 62, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The yuan gained 0.04 percent to 6.2140 per dollar in Shanghai.

“This could be the first high-profile test case, as other solar companies are also in distress,” said Yang Liu, a convertible bond analyst in Hong Kong at Daiwa Capital Markets Co. “With so many banks involved, with political intention involved, it won’t be a straight-forward default case if it comes to that.”

To contact the reporter on this story: Ehren Goossens in New York at egoossens1@bloomberg.net