China won't rescue Suntech Power from its creditors because the former biggest solar-panel maker needs to retrench along with the rest of the industry, two advisers to government agencies said.
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Officials in Beijing want to pare excess manufacturing capacity and consolidate the $US25 billion global industry that's led by China, said Li Junfeng, director of the climate-change strategic research division at the government's National Development and Reform Commission.
“The government won't intervene and shouldn't,” Li said in an interview. Meng Xiangan, vice chairman of the China Renewable Energy Society, a liaison between the industry and the state, said Suntech should “not rely on government assistance.”
The comments from advisers with knowledge of the Chinese government's thinking cast doubt on whether Suntech, the largest solar panel manufacturer in 2011, can avoid bankruptcy. The company March 11 said it obtained an agreement from more than 60 per cent of bond holders to delay repayment for two months on $US541 million ($525 million) of notes due Friday.
The national government wants to avoid a default, which would be the first for a bond issued by a company based in mainland China. Restructuring the solar industry is one of the first issues confronting Premier Li Keqiang as his administration takes over from Wen Jiabao this month.
Bankruptcy risk
Suntech's best course would be to “file for bankruptcy for some assets and let a state-owned power enter to protect certain interests,” Meng said. “The entire company won't go bankrupt. Its brand will remain alive.”
Two calls to Suntech's Wuxi headquarters in Jiangsu province and an e-mail to a company spokesman went unanswered after regular business hours. Walker Frost, a spokesman for the company in San Francisco, declined to comment.
The New York Times yesterday reported that Suntech is close to be taken over partially or entirely by Wuxi Guolian Development Group Co., a holding company part-owned by the municipal government. The newspaper cited solar-industry executives who it didn't name and an unidentified person who answered the phone at Wuxi Guolian.
Suntech executives are negotiating with bondholders about how to restructure payments on the $US541 million of notes that are convertible into shares as soon as tomorrow.
Local support
The company is also in talks with the government of Wuxi about financial assistance, though it's not clear how much support the local authority is prepared to give. Suntech got a $US32 million loan from Wuxi in September. In November, LDK Solar, China's second-biggest supplier of wafers for solar cells in 2011, sold a 19.9 per cent stake for about $US21.8 million to Heng Rui Xin Energy, which is partly owned by the Xinyu government, where it has a factory.
“The question is what kind of bailout Wuxi officials can swing,” said Melanie Hart, a policy analyst at the Center for American Progress in Washington. “If the bailout isn't backed by a big state bank, it may be only partial. China Development Bank represents Beijing, not Wuxi, and Beijing is more concerned with developing the industry as a whole than it is with saving companies. We should not underestimate its ability to take a pass on a deal that it sees as a bad bet.”
Shares of Suntech fell 24 per cent to 83 cents at the close in New York yesterday, the lowest since Nov. 26, giving the company a market value of $US149.5 million.
Solar boom
China in the past three years wrested leadership over solar manufacturing away from German and Japanese companies, extending cheaper loans and cutting prices more quickly. That led to production capacity more than doubling at each of its top five panel manufactures.
That expansion supported a surge in installations of photovoltaics to 30 gigawatts last year from 7.7 gigawatts in 2009, according to Bloomberg New Energy Finance. The cost of solar cell prices has plunged 72 per cent over the same period, including a 20 per cent drop in 2012, widening losses at Chinese solar companies.
Suntech, LDK, Trina Solar, Yingli Green Energy Holding, Hanwha SolarOne and Jinko Solar Holding were among 12 companies that obtained more than $US43.2 billion in credit pledges from China Development Bank Corp., according to data compiled by Bloomberg.
Shares of Suntech have fallen 35 per cent since March 4 after the board ousted founder Shi Zhengrong as chairman. The Chinese analysts said that government funding for the solar industry helped cause the problems.
Government blamed
Suntech's distress “was due to the governmental intervention,” Li of the NRDC, China's top economic planning agency, said in a phone interview in Beijing late yesterday.
China reiterated it plans to promote consolidation among solar companies in December. Suntech was the world's biggest panel maker in 2011 with shipments of 2.1 gigawatts and was tied with First Solar by factory capacity. It expects 2012 shipments to slip to 1.7 gigawatts to 1.8 gigawatts.
The solar panel glut is the result of “overheated investment motivated by local governments that were keen on economic growth in the past when we started developing the photovoltaic business,” Meng said. “Suntech should mainly depend on its own efforts to overcome the difficulties.”
Revenue decline
Suntech's market value slumped 72 per cent in the past year after losses of $US646 million in the four quarters through March 2012. The company hasn't released any financial reports since, after announcing in July that it may have been the victim of fraud involving 560 million euros ($704 million) of German bonds that may have never existed.
Revenue dropped 18 per cent to $US387 million in the third quarter as shipments of photovoltaics dropped 10 per cent, Suntech said on Dec. 7, when it published preliminary results. It said it expected a “slightly negative” gross margin, without giving more details.
Meng of the Renewable Energy Society said the glut is the result of excess support from authorities, who are seeking to create jobs.
“If companies can't survive, even if they are saved, it's useless,” Meng said. “Our policy is very clear to encourage mergers and acquisitions. Both state- and privately-owned entities can restructure or acquire each other. Restructuring or mergers and acquisitions are in line with what the central government requires.”
Suntech said 60 per cent of bondholders have agreed to the forbearance. Some of the remaining 40 per cent of bondholders said they weren't contacted about a forbearance and want to be paid on schedule tomorrow. The company may not be able to delay the bond payments, said Adam Cohen, the founder of Covenant Review, a research firm in New York.
The bondholders have an “absolute right” to be repaid the principal when the bonds mature, Cohen said in an interview March 12. “It doesn't matter that a majority or 60 per cent wants to wait 60 days.”
