Shunfeng move hints at progress for Suntech's China debt talks

HONG KONG Thu Oct 10, 2013 4:37am EDT

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HONG KONG (Reuters) - A closely watched restructuring of Suntech Power Holdings Co Ltd's Chinese debt is likely to move forward after Shunfeng Photovoltaic International Ltd was named the preferred bidder for Suntech's main unit.

Battered by a global glut in solar panels, Suntech Power, once one of the largest players in the industry, defaulted on a $541 million dollar convertible bond in March. It was one of the biggest defaults by a Chinese company and five days later its main unit, Wuxi Suntech, filed for bankruptcy protection in China.

The Shunfeng deal is not yet assured and its success will hang on whether it will be able to cut a favorable deal with Wuxi Suntech's creditors.

Those talks are in turn being monitored by offshore holders of Suntech Power's bonds, creditors whom analysts say are expected to recover a fraction of their capital at best. What happens to them will have wide implications for investors who have flocked to Chinese dollar-denominated debt in search of yield.

The Wuxi Suntech case will also be a rare test of a bankruptcy law introduced in 2007. Local government officials generally mediate between creditors behind closed doors and Beijing has used the law cautiously, fearing the failure of large companies and widespread layoffs could lead to social unrest.

Wuxi Suntech has $1.75 billion in debt. While the value of Shunfeng's bid is not known, a source close to the situation said Wuxi Suntech's creditors, including banks and suppliers, will need to suffer deep losses for Shunfeng to move ahead with its acquisition.

"As for how much of a hair cut they will take, it remains a big question mark," said the source, speaking on condition of anonymity as he was not authorized to openly discuss the matter.

"Another question is whether Shunfeng can put together a financing package for the potential transaction."

Representatives for Shunfeng and Suntech Power were not immediately available for comment.

At the end of March 2012, Suntech Power had total debt of $2.2 billion, including the convertible bond, loans from China Development Bank, and a $50 million convertible loan from International Finance Corp, the private sector arm of the World Bank. It has yet to publish its 2012 annual report and disclose its overall debt situation.

BIG AMBITIONS

China's solar industry has been ravaged by overcapacity, vicious price wars and trade conflict.

But Beijing's recent moves to prop up the ailing sector and a solar trade deal with the European Union have prevented further deterioration and even prompted fresh interest from the likes of Shunfeng.

Shunfeng, a smaller player in the industry, won the auction by beating out its only rival bidder - a consortium led by Wuxi Guolian, the investment arm of the city government of Wuxi where Suntech is headquartered, according to a government notice seen by Reuters.

Shunfeng has made a 500 million yuan ($82 million) deposit on the Suntech offer, which it says is aimed at strengthening its solar cell and module manufacturing capability and aiding its diversification into the operation of solar power plants.

Investors welcomed the move, which has boosted Shunfeng's shares by about 48 percent in the past two sessions, valuing the company at nearly $1 billion.

Once an acquisition agreement is finalized, the winning bidder will be required to immediately pay down the debt at Wuxi Suntech and provide funding of 1-2 billion yuan to sustain Wuxi Suntech's operations, the source said.

Wuxi Suntech, which at its peak had 10,000 employees, accounts for the majority of Suntech's total annual manufacturing capacity of more than 2,000 megawatts. In recent months, it has only been operating at a fraction of its capacity.

Shunfeng, controlled by Chinese businessman Cheng Kin Ming, said on Wednesday it plans to finance the potential acquisition through a number of channels, including debt, a joint venture or partnership arrangement and internal resources.

In late September, Shunfeng announced a plan to place 400 million shares to raise up to HK$1.12 billion, mainly for future capital expenditure.

In the first half of the year, its gross profit fell 17.6 percent year to 51 million yuan as revenue sank 36.9 percent to 416 million yuan.

In its first-half report, Shunfeng said it expects to sign up for generating projects with total annual designed capacity of more than 1,079 megawatts by the end of 2013.

(Additional reporting by Anne Marie Roantree and Clement Tan in HONG KONG; Editing by Edwina Gibbs)

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