* Shunfeng named preferred bidder for Wuxi Suntech
* Bid's success will depend on talks with creditors -source
* Creditors will likely have to take big haircut -source
* Talks closely watched by offshore holders of Suntech bonds
(Recasts on bid's implications for Suntech's debt)
By Charlie Zhu
HONG KONG, Oct 10 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
The Shunfeng deal is not yet assured and its success will
hang on whether it will be able to cut a favourable 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
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
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
"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 authorised 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.
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
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 finalised, 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
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
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)