UPDATE 2-Suntech says it was defrauded, will restate 2010 income

Fri Dec 7, 2012 2:15pm EST

By Swetha Gopinath

Dec 7 (Reuters) - Chinese solar panel maker Suntech Power Holdings Co Ltd, already under pressure from the collapse in the price of its products, said an internal probe concluded the company was defrauded by a partner in a solar development fund.

As a result, Suntech will reduce its 2010 net income by between $60 million and $80 million, it said in a statement.

The news was the latest blow to Suntech, which is grappling with a global glut of solar panels that has sent prices into a tailspin. The company also said revenue fell 18 percent from the second to third quarters because subsidies were cut in Europe, a top solar market. Shipments of photovoltaic solar panels are expected to be lower than planned.

Suntech is also weighing alternatives to cover a $541 million convertible bond due in 2013.

The Chinese solar panel industry received a vote of confidence too, on Friday, when Suntech rival JinkoSolar Holding Co Ltd said its Swiss unit will get up to $1 billion over five years from the China Development Bank Corp to fund projects outside China. JinkoSolar's stock was up 12 percent following the announcement, which also lifted the shares of rivals Trina Solar Ltd, Yingli Green Energy Holding Co Ltd and JA Solar Holdings Co Ltd.

Suntech shares were up 2.2 percent at 88 cents in afternoon trading. The stock has fallen about 35 percent since July 30 when Suntech said it might have been the victim of a fraud. Many solar stocks have lost more than half of their value this year due to weak demand and an oversupply of solar panels.

The No. 1 solar panel maker also said on Friday that its results for 2011 and the first quarter of 2012 should not be relied on, although the impact was expected to be "immaterial."

The scandal involves Luxembourg-based investment fund GSF Sicar, a solar power plant developer 80 percent owned by Suntech and 10 percent by Zhengrong Shi, who founded Suntech in 2001.

The allegation relates to a minority shareholder, GSF Capital PTE, which owns the remaining 10 percent of the fund.

Suntech, which plans to file restated consolidated results in early 2013, said it concluded that a security interest it received from GSF Capital to finance Italian solar projects did not exist. It said in August that the 560 million euro ($727 million) security was in the form of German bonds.

One analyst said there was a risk the restatement could stretch Suntech's already fragile balance sheet.

"$60 million to $80 million is a small number for Suntech," said Maxim Group analyst Aaron Chew. "The implication for Suntech not having collateral for that $700 million loan is that the loan should go on to Suntech's balance sheet. The issue is what their level of debt is now going to be and if that is going to trigger any covenant defaults."

The company said that, as a result of the alleged fraud, it was now required to record a guarantee obligation higher than the prior obligation of $3 million.

GSF Capital officials were could not be immediately contacted.

A prosecutor in the southern Italian city of Brindisi has brought charges against certain officers of GSF subsidiaries alleging they failed to comply with the necessary permitting process and building regulations for solar plants in Italy.

Suntech said on Friday it was advised the GSF officers were vigorously contesting the charges and believed the plants at issue were in compliance with Italian law.

Suntech cut its full-year shipment forecast to a range of 1.7 gigawatts (GW) to 1.8 GW from 1.8 GW to 2.0 GW and estimated shipments declined by about 10 percent in the third quarter ended Sept. 30 compared with the preceding quarter.

The company said third-quarter revenue was estimated at $387 million. Analysts on average were expecting $478.45 million, according to Thomson Reuters I/B/E/S.

However, the company said its gross margin turned positive in the third quarter to about 5 percent, partly because it reversed an $18 million provision it took in relation to U.S. countervailing and anti-dumping duties.

The United States gave final approval last month to duties on solar equipment imports from China, but rejected a finding that would have made the duties retroactive by 90 days.

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