This is what happens upon a default by a China company:
Biggest Solar Collapse in China Imperils $1.28 Billion: Energy
By Ehren Goossens and Justin Doom - Mar 20, 2013
Investors stand to lose most of the $1.28 billion they put into
Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.
The company, based in Wuxi, outside
Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency.
“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at
Standard & Poor’s Financial Services LLC in New York, said in an interview yesterday.
Mount Kellett Capital Management LP, Driehaus Capital Management LLC and Pioneer Investment Management Inc. were the largest bondholders, with about 23 percent of the debt, according to December public filings compiled by Bloomberg.
The largest outside
owners of Suntech’s American depositary receipts are Renaissance Technologies Corp., Invesco Ltd. and Shah Capital Management. None of the bondholders or shareholders were available for comment.
Suntech’s collapse follows bankruptcies in
Germany of manufacturers including Q-Cells SE, previously the biggest solar manufacturer. Sharp Corp. of
Japan, which led solar cell-making until 2006, has been scaling back operations overseas. In 2011, Solyndra LLC collapsed despite $535 million of support from the U.S. Energy Department.
Forbearance Deal
Suntech said last week that almost two-thirds of bondholders agreed to defer their rights for two months to give the company time to restructure its debt.
It’s unclear how the Chinese filing will affect U.S. creditors, said James Millar, a partner at the
law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York, who represents bondholders who own more than 1 percent of the debt.
“I can’t speak so much to the Chinese process,” he said in an interview. “Does a bondholder of a holding company have standing in a Chinese operating unit’s bankruptcy? I think the right answer is that the bondholders should have a seat at that table.”
Investors may lose everything, said Aaron Chew, an analyst with Maxim Group LLC in New York.
‘Nasty Fight’
“This is about the Western bondholders versus the Chinese banks fighting for the assets, and there’s not enough to go around,” he said. “It’s going to be a nasty fight. I think this becomes a legal issue. One of the last companies I’d like to pick a fight with is
Bank of China over an asset in China.”
Suntech raised $742.6 million in two stock
offerings in New York, in 2005 and 2009. Combined with the $541 million principal on the convertible bonds that matured March 15, it’s received $1.28 billion.
The ADRs, each worth one ordinary share, closed at 59 cents March 19, before the bankruptcy was announced and trading halted. That’s a
decline of more than 99 percent from the high of $88.35 in December 2007.
“You can forget about the equity shareholders,” said Zino of Standard & Poor’s. “I don’t think there’s any way they’re getting anything out of this.”
China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than quadrupled its annual production capacity to 2,400 megawatts in 2011 from 2007, according to data compiled by Bloomberg. That made it the biggest solar manufacturer at the time.
Global Glut
The U.S. and European governments cut back on renewable- energy subsidies, slowing demand for solar panels and creating a global oversupply that drove down prices 20 percent last year.
Suntech hasn’t reported a profit since the first quarter of 2011.
The company hired UBS AG in October to help it renegotiate the debt, and has been talking to local government agencies in Wuxi about receiving financial aid. It announced March 11 a forbearance deal with 63 percent of its bondholders, who agreed not to exercise their rights until May 15.
Not all the bondholders agreed to the deal and some said they were never contacted by Suntech.
Complicating the process is the fact that the Chinese bankruptcy filing names Suntech’s main unit, Wuxi Suntech Power Holdings Co., which is subject to Chinese law.
‘Substantial Costs’
The parent company is incorporated in the
Cayman Islands. The bondholders are creditors of the parent company, and the bond prospectus said the debt is governed by New York law. “Any litigation in China may be protracted and result in substantial costs,” Suntech said in its 2011 annual report.
U.S. creditors must contend with “a fundamental disadvantage that non-Chinese lenders have in a bankruptcy,” said
Christopher Peterson, a partner at the law firm Kaye Scholer LLP. “They would need to get the consent of a Chinese court to get action in China, which the Chinese lenders don’t have to face.”
Suntech said it remains in production. That means the company’s failure won’t do much to alleviate the global panel glut, said
Gordon Johnson, an analyst with Axiom Capital Management Inc.
“That capacity continues to exist in the market, which is clearly not good for the market,” he said in an interview.
Four of the six top panel manufacturers are based in China. Suntech fell to fifth in production capacity last year behind China’s Trina Solar Ltd. and Yingli Green Energy Holding Co., Tempe, Arizona-based First Solar Inc. and Canadian Solar Inc., according to Bloomberg New Energy Finance.
State Support
Suntech named an executive from a government-backed development company in Wuxi to serve as its president March 19. Zhou Weiping previously worked as chairman of Guolian Futures Co., a unit of Wuxi Guolian Development Group Co., which is partly owned by the regional authority.
The company
lost $1.01 billion in 2011 and was expected to report a loss of $460 million for 2012, the average of three analysts’ estimates compiled by Bloomberg.
“If you’re an investor and didn’t see this coming, it’s on you,” Alex Morris, an analyst at Raymond James & Associates Inc. in Houston, said in an interview.
To contact the reporters on this story: Ehren Goossens in
New York at
[email protected]; Justin Doom in New York at
[email protected]
To contact the editor responsible for this story: Reed Landberg at
[email protected]
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