By Charlie Zhu and Umesh Desai
HONG KONG, March 13 Cash-strapped Chinese solar
panel maker Suntech Power Holdings Co Ltd is likely to
be bailed out by the state, despite a temporary reprieve from
some debt holders, as it struggles to cover a $541 million
convertible bond due within days.
Despite billions of dollars in subsidies, Suntech and other
indebted solar industry manufacturers like LDK Solar
have been haemorrhaging cash, hit by trade disputes and a global
panel glut that has caused prices to collapse and hammered their
once high-flying stock prices over the past two years.
Suntech, one of the world's largest solar panel
manufacturers by capacity, said on Monday it had reached an
agreement with investors holding more than 60 percent of the
bond due this Friday to defer their debt payment by two months.
That may have won it some breathing space to hammer out a
debt restructuring plan, but it has yet to persuade the
remaining 40 percent of bondholders to sign up. It does not have
enough cash to even meet their $200 million portion of the debt.
The decline of Suntech, a former green tech poster child
with a New York Stock Exchange listing and a market value of $16
billion at its peak, presents China with a dilemma.
While some industry officials have argued it makes sense to
let some solar panel makers go bankrupt in light of the
worsening oversupply of panels, analysts say that allowing
Suntech to fail could trigger a crisis of confidence in a sector
whose development Beijing has made a priority.
"Two months from now, bond holders will likely have to
compromise and take some sort of haircut, and then Suntech will
get help from local government," said CLSA analyst Charles
Yonts, echoing the view of other analysts.
The problem for Suntech is that, with no sign of a recovery
from the industry-wide slump, it will not be able to repay the
debt in two months time even if all of its bond holders agree to
defer the payment now.
The government of the city of Wuxi, the solar technology hub
where Suntech is based, is in talks with the company and may
prefer a bailout rather than risk wider repercussions for the
sector and local banks from allowing it to fail, people with
knowledge of the matter told Reuters.
"Wuxi government may rush to its rescue," one source said by
phone from the city, in eastern China.
However, the sources said the municipal government would
refrain from an aggressive bailout, given the solar sector's
dismal prospects, and bond holders would still need to "take a
haircut" -- undertaking part of the losses.
Calls to the offices of the Wuxi government went unanswered.
China's solar panel manufacturing industry employs hundreds
of thousands of people and is the largest in the world by
capacity, after local governments jostled to attract investment
in the sector with preferential policies in recent years.
State banks had provided billions dollars of easy loans to
the sector amid Beijing's push to develop clean energy.
TOO BIG TO FAIL?
At the end of March 2012, Suntech had total debt of $2.2
billion -- including loans from China Development Bank, and a
$50 million convertible loan from the International Finance
Corporation, the private sector arm of the World Bank.
It had a net debt-to-equity ratio of around 200 percent, and
the ratio must have increased sharply over the past year as the
solar industry deteriorated further, analysts say. The company
has not released quarterly results since the second quarter of
2012, but reported losses for the four quarters before that.
Suntech in October hired investment bank UBS to evaluate
alternatives for the convertible notes. UBS was not immediately
available for comment.
Suntech and UBS have been holding discussions with bond
holders on restructuring, but they have kept their cards close
to their chest.
"Basically they all are focused on that and it is a very
sensitive issue for them," a Suntech spokesman said. He declined
Under a likely scenario, Suntech would turn part of the
bonds into long-term debt guaranteed by a government entity, and
convert the remaining debt into Suntech shares, analysts said.
"We believe Suntech is too large a company to fail and
eventually will reach a financing deal with the local
government," said Pranab Sarmah of Daiwa Capital Markets.
"My guess is there is a high probability of renegotiating
terms with bondholders with some minimal payment. Cash for such
payment will come from government entities against equity stakes
Bond holders would take a big hit from any bond-to-equity
conversion. Shares of Suntech have plummeted nearly 99 percent
from their 2008 peak of $90. Based on its Monday closing price
of $1.15, the company has a market value of only $208 million.
CREDITORS BEWARE IDES OF MARCH
Offshore creditors can push for bankruptcy proceedings
against the Cayman Islands-incorporated company, but they would
probably end up recovering little from the process given most of
Suntech's assets are in mainland China and onshore lenders rank
ahead of them in claims, analysts say.
There have been several instances of state support for the
solar sector. In December, Bank of Beijing provided Hanwha
SolarOne with a credit line of about $475 million, allowing it
to repay its long-term debt after it reported losses for the
last six quarters.
Optimism for a bailout was reflected in the bonds of Suntech
and some of its peers such as Trina Solar and JA Solar
. Suntech's convertible bonds, due on March
15, have recovered to $34.5/$36.50 from their December level of
$28.50, versus an issue price of $100.
This means that while the bondholders don't expect to
receive their principal outstanding in full, they expect to
recover more than they did three months ago.
Still, the bonds took a big hit in the past few sessions,
down $8 ahead of the redemption deadline.
Shi Zhenrong, founder and a major shareholder of Suntech,
will do his best to avoid a significant dilution of his family's
controlling stakes in the firm.
There have been rumours that the Wuxi government has asked
Shi -- who also owns substantial businesses other than Suntech
-- to contribute to the restructuring and shore up Suntech. Shi,
reached by Reuters by phone, declined to comment.
Last week Suntech issued a statement naming Susan Wang, a
former chief financial officer of Solectron Corp, as chairman of
the board. It said Shi would remain a director of the company.
Shi has said his removal was "invalid" and "misconceived and
It was not clear whether Shi would take action to fight his
removal, but his call has added to uncertainties surrounding the
future of Suntech, analysts say.