Biggest Solar Collapse in China Imperils $1.28 Billion; China’s Solar Billionaire Undone as Banks Push Suntech to Brink

Biggest Solar Collapse in China Imperils $1.28 Billion: Energy

Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.

The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency.

“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York, said in an interview yesterday.

Mount Kellett Capital Management LP, Driehaus Capital Management LLC and Pioneer Investment Management Inc. were the largest bondholders, with about 23 percent of the debt, according to December public filings compiled by Bloomberg.

The largest outside owners of Suntech’s American depositary receipts are Renaissance Technologies Corp., Invesco Ltd. and Shah Capital Management. None of the bondholders or shareholders were available for comment.

Suntech’s collapse follows bankruptcies in Germany of manufacturers including Q-Cells SE, previously the biggest solar manufacturer. Sharp Corp. of Japan, which led solar cell-making until 2006, has been scaling back operations overseas. In 2011, Solyndra LLC collapsed despite $535 million of support from the U.S. Energy Department.

Forbearance Deal

Suntech said last week that almost two-thirds of bondholders agreed to defer their rights for two months to give the company time to restructure its debt.

It’s unclear how the Chinese filing will affect U.S. creditors, said James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York, who represents bondholders who own more than 1 percent of the debt.

“I can’t speak so much to the Chinese process,” he said in an interview. “Does a bondholder of a holding company have standing in a Chinese operating unit’s bankruptcy? I think the right answer is that the bondholders should have a seat at that table.”

Investors may lose everything, said Aaron Chew, an analyst with Maxim Group LLC in New York.

‘Nasty Fight’

“This is about the Western bondholders versus the Chinese banks fighting for the assets, and there’s not enough to go around,” he said. “It’s going to be a nasty fight. I think this becomes a legal issue. One of the last companies I’d like to pick a fight with is Bank of China over an asset in China.”

Suntech raised $742.6 million in two stock offerings in New York, in 2005 and 2009. Combined with the $541 million principal on the convertible bonds that matured March 15, it’s received $1.28 billion.

The ADRs, each worth one ordinary share, closed at 59 cents March 19, before the bankruptcy was announced and trading halted. That’s a decline of more than 99 percent from the high of $88.35 in December 2007.

“You can forget about the equity shareholders,” said Zino of Standard & Poor’s. “I don’t think there’s any way they’re getting anything out of this.”

China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than quadrupled its annual production capacity to 2,400 megawatts in 2011 from 2007, according to data compiled by Bloomberg. That made it the biggest solar manufacturer at the time.

Global Glut

The U.S. and European governments cut back on renewable- energy subsidies, slowing demand for solar panels and creating a global oversupply that drove down prices 20 percent last year.

Suntech hasn’t reported a profit since the first quarter of 2011.

The company hired UBS AG in October to help it renegotiate the debt, and has been talking to local government agencies in Wuxi about receiving financial aid. It announced March 11 a forbearance deal with 63 percent of its bondholders, who agreed not to exercise their rights until May 15.

Not all the bondholders agreed to the deal and some said they were never contacted by Suntech.

Complicating the process is the fact that the Chinese bankruptcy filing names Suntech’s main unit, Wuxi Suntech Power Holdings Co., which is subject to Chinese law.

‘Substantial Costs’

The parent company is incorporated in the Cayman Islands. The bondholders are creditors of the parent company, and the bond prospectus said the debt is governed by New York law. “Any litigation in China may be protracted and result in substantial costs,” Suntech said in its 2011 annual report.

U.S. creditors must contend with “a fundamental disadvantage that non-Chinese lenders have in a bankruptcy,” said Christopher Peterson, a partner at the law firm Kaye Scholer LLP. “They would need to get the consent of a Chinese court to get action in China, which the Chinese lenders don’t have to face.”

Suntech said it remains in production. That means the company’s failure won’t do much to alleviate the global panel glut, said Gordon Johnson, an analyst with Axiom Capital Management Inc.

“That capacity continues to exist in the market, which is clearly not good for the market,” he said in an interview.

Four of the six top panel manufacturers are based in China. Suntech fell to fifth in production capacity last year behind China’s Trina Solar Ltd. and Yingli Green Energy Holding Co., Tempe, Arizona-based First Solar Inc. and Canadian Solar Inc., according to Bloomberg New Energy Finance.

State Support

Suntech named an executive from a government-backed development company in Wuxi to serve as its president March 19. Zhou Weiping previously worked as chairman of Guolian Futures Co., a unit of Wuxi Guolian Development Group Co., which is partly owned by the regional authority.

The company lost $1.01 billion in 2011 and was expected to report a loss of $460 million for 2012, the average of three analysts’ estimates compiled by Bloomberg.

“If you’re an investor and didn’t see this coming, it’s on you,” Alex Morris, an analyst at Raymond James & Associates Inc. in Houston, said in an interview.

To contact the reporters on this story: Ehren Goossens in New York at egoossens1@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net

China’s Solar Billionaire Undone as Banks Push Suntech to Brink

Shi Zhengrong, once China’s richest man, saw his fortune further unravel yesterday as the solar company he founded allowed its main unit to tip into insolvency.

Shi’s stake in Suntech Power Holdings Co. (STP) was valued at $1.7 billion when he emerged at the top of the Wall Street Journal’s rich list for China in 2006. His roughly 30 percent stake today is down to about $32 million, if shareholders get anything out of the Chinese bankruptcy process.

Suntech was once the world’s biggest solar company and Shi, 50, set his sights on growing as big as BP Plc (BP/) or Royal Dutch Shell Plc. (RDSA) The decline of China’s first solar billionaire shows how the industry built itself with cash from Wall Street and Chinese authorities, creating a boom in factory expansions that ultimately drove down prices.

“Being in the solar manufacturing industry over the past eight years has been an excellent way to turn a big fortune into a small one,” said Jenny Chase, lead solar analyst at Bloomberg New Energy Finance in Zurich.

Suntech had debt of $2 billion at the end of August and defaulted on a $541 million bond that matured last week. That prompted eight Chinese banks to ask a court in Wuxi, where Suntech is based, to start bankruptcy proceedings on its main manufacturing unit.

Shi was ousted as chairman March 4, and spoke out about the company’s inability to restructure the debt. “The problem is they don’t have a solution,” he said in an interview. “They need a viable business plan.”

Suntech Debt

The company had about $1.44 billion of bank credit and a $50 million loan from the International Finance Corp., according to regulatory filings. China Development Bank Corp. is among its lenders. Suntech raised a total of $743 million from Wall Street in two separate stock offerings in 2005 and 2009. The bonds traded in New York.

Shi started Suntech in 2001 after serving as research director at another solar company in Australia, Pacific Solar Pty. He received a bachelor’s degree in optical science from Changchun University of Science and Technology in 1983 and a master’s in laser physics from the Shanghai Institute of Optics and Fine Mechanics in 1986.

After moving to Australia in the late 1980s, he earned his doctorate in electrical engineering at the University of New South Wales in Sydney in 1992.

Calls to Shi in Beijing weren’t answered, and he didn’t respond to e-mails seeking comment after Suntech’s announcement last night.

Fast Learner

The native of Jiangsu province was one of the fastest to finish the program at UNSW’s School of Photovoltaic and Renewable Energy Engineering, according to Martin Green, a professor at the university.

“He was the type of student to get a result at just about anything he did,” Green said by phone in October. “Something about the way he tackled problems. He was able to overcome difficulties that might emerge and see his way through.”

The Chinese scholar went to work for Pacific Solar, a university spinoff, in 1995 and became an Australian citizen.

When Shi decided to return to China in 2001 to start the solar-power company, lured by $6 million in funding from a regional government in Wuxi in eastern China, his fellow researchers in Sydney tried to talk him out of it.

Green, known by some in the solar industry as the “father of photovoltaics,” reminded Shi of their unsuccessful trip to China seven years earlier to find a partner and open a manufacturing facility in the country, Green said. They had hoped to commercialize the university’s solar technology.

Hopeless Situation

“We thought the situation was pretty hopeless,” Green recalled. “The companies weren’t operating very efficiently or effectively. So I was pretty pessimistic about his chances based on how difficult I perceived it to be.”

David Hogg, who worked with Shi at Pacific Solar and again at Suntech as chief operating officer for two years until 2011, said Shi helped attract Chinese researchers and eased communication with their Australian peers.

“He was able to get the best out of people,” Hogg said in an interview in October. “While he was of Chinese origin, he was quite a Western guy in many ways.”

Four years after leaving Australia, Suntech began trading on the New York Stock Exchange. The Chinese company later won a contract to supply the solar system for the stadium at the 2008 Beijing Olympics, opened its first U.S. factory in 2010 and reached 2 gigawatts of production the next year.

Record High

The company’s American depositary receipts, each worth one ordinary share, climbed to a high of $88.35 on Dec. 26, 2007, from an initial price of $15 in 2005. The stock closed at 58.6 cents on March 19, valuing the company at $105.6 million.

“Dr. Shi was very popular with investors and clients, and was one of the most sought-after speakers on the conference circuit from 2005,” said Chase, the New Energy Finance analyst in Zurich. “Then, the supply balance flipped from undersupply to oversupply in late 2008.”

Shi set his targets on rivaling Big Oil in scale. He told the Guardian that year that Suntech within a decade may be as big as BP or Shell.

Suntech’s capacity to make solar modules more than quadrupled to 2,400 megawatts in 2011 from 540 megawatts in 2007, part of China’s effort to wrest control of the industry away from German and Japanese companies.

Top Companies

Four of the six top panel manufacturers are based in China, including Trina Solar Ltd., Yingli Green Energy Holding Co., and Suntech, which fell to fifth in production capacity in 2012, according to New Energy Finance. Sharp Corp., which is based in Osaka, Japan, dominated the industry until 2006. Then Q-Cells SE of Thalheim, Germany, took over the lead.

In November 2010, Shi joined Oscar-winning actress Cate Blanchett at the Sydney Theatre Co. to mark the start of a rooftop solar-power system using Suntech panels. The company was the world’s biggest cell maker that year and the next.

Giving a speech on a wharf overlooking Sydney Harbor, Shi, who donated A$2 million ($2.08 million) to the project, called the effort to replace fossil fuels with renewable energy the “challenge of our generation.”

“Twenty years ago, while performing solar research at the University of New South Wales, few people believed solar technology could be one day part of the beauty of a place such as this wharf,” Shi said in 2010. “Even 10 years ago skeptics would ask, ‘Do you really believe solar technology will be economically competitive with fossil fuels?’’

Solar Expansion

It was the scale of the industry’s expansion that undid Shi’s ambitions. Solar cell prices that as recently as October 2010 were $1.50 a watt are now less than a third of that price, costing about 38 cents on March 11, according to data compiled by Bloomberg.

Suntech last reported a profit in the first quarter of 2011 and in July disclosed that it was a victim of accounting fraud involving an affiliated company in Europe. It hired UBS AG to help restructure debt payments then the unit succumbed to insolvency after failing to retire its bonds on schedule last week.

To contact the reporters on this story: James Paton in Sydney at jpaton4@bloomberg.net; Reed Landberg in London at landberg@bloomberg.net