Chinese banks face losses over “Chinnovator” Wuxi Suntech Power loans

August 5, 2013 4:34 pm

Chinese banks face losses over Wuxi Suntech Power loans

By Henny Sender

Chinese banks that lent money to solar-panel maker Wuxi Suntech Power, and later put it into administration, are facing substantial losses on their loans, according to the company’s other creditors.

While the total liabilities of Wuxi Suntech – which is the principal operating subsidiary of the US-listed Suntech Power Holdings – remains in dispute, creditors have said the figure is at least Rmb10bn ($1.63bn), while its assets may be less than a quarter that amount.

Both China’s policy bank China Development Bank andBank of China have exposure to the Wuxi subsidiary, according to statements filed with US regulators. As of the end of 2011, all the Chinese banks involved had $2.3bn in loans out to the solar-panel maker – suggesting the current estimate of liabilities is conservative.

In a filing in New York on July 19, Wuxi Suntech asserted claims over offshore entities as part of an inter-company debt restructuring. These claims stand to help the banks recover their loans, but would hurt the offshore lenders who invested in debt that the parent company issued.

Negotiations over Wuxi Suntech’s debt restructuring are being closely watched as a test case for Beijing’s commitment to reforms that would reduce government subsidies and investment in those sectors, such as solar power, suffering overcapacity, a lack of pricing power and losses.

The offshore creditors include a group of hedge funds based in the US and Hong Kong, which invested in a $550m convertible bond issued by Suntech Power Holdings, and the IFC arm of the World Bank, which lent $50m to the parent.

Neither creditor has any security backing their claims, and may take equity in a reorganised company.

The parent company, Suntech Power Holdings, defaulted on $541m of bonds in March – at which point, the banks pushed the Chinese subsidiary into administration.

Banks in general are beginning to take a more aggressive line with distressed borrowers.

“It has been rare for the banks to put a company into administration,” observed one Beijing-based lawyer who is not involved in the Suntech situation. “But they are becoming more willing now.”

However, while Beijing is determined to pursue reforms, vested interests at a local level are likely to resist. The banks are in intensive talks with the administrator in Wuxi, a city in Jiangsu province not far from Shanghai. “The Chinese banks are pressing for full payment and want the Wuxi local government to bail them out,” one person familiar with the matter said.

Wuxi’s local government has always had close ties with Wuxi Suntech Power, which at one point had about 10,000 employees and 400 suppliers in China, with its key operations based in the city.

Those familiar with the matter say that an asset management company recently set up by Wuxi could eventually fund Suntech. The Wuxi government gave the company its seed capital through another investment vehicle called Wuxi Guolien which is also involved in the restructuring talks.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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