Suntech on the brink of fizzling out
Suntech Power, the solar company founded by Australian Shi Zhengrong, is teetering on the edge of bankruptcy because excessive growth in the industry triggered a global supply glut, according to the head of the company's Australian research arm.
Suntech may be declared as soon as Monday to be in default on $US541 million ($520 million) in convertible bonds initially due last Friday. The company had secured agreement from 63 per cent of bondholders to delay payment for two months but others have indicated they may sue the firm.
A trustee administering the bonds sent Suntech a notice of default at the end of last week, Bloomberg reported, a move that would allow bondholders to take the company to court in the US. A default, if declared, would be the first by a Chinese company.
Suntech was founded by Dr Shi, who trained and worked at the University of NSW and took Australian citizenship before returning to China in 2001.
The company, the first producer of solar panels to list on the New York stock exchange, soared in value to be worth $US16 billion at the end of 2007, making Dr Shi a multibillionaire and earning him the sobriquet of the "Sun King". The shares have fallen more than 99 per cent from their highs.
Suntech has faced a slew of financial problems over the past year, including possible fraud losses totalling more than $700 million. Senior management has also been in turmoil, with Dr Shi stripped of his role as chief executive in August and then his chairmanship earlier this month even though he apparently maintains the biggest share of Suntech at about 30 per cent.
Dr Shi, who turns 50 on Monday, may see the entire value of his stock wiped out if the company is declared bankrupt.
Renate Egan, managing director for Suntech's Australian research and development unit, said Suntech - along with many of its rivals - exceeded ambitious growth targets.
"Suntech doubled every year for six or seven years and couldn't produce enough for the market," Dr Egan said. Employees went from 200 to 20,000 in that time. Then the financial crisis struck, sapping credit for many buyers of solar photovoltaics just as supply had started to explode.
"Now supply far exceeds demand and everybody's competing on cost," she said.
Suntech's Australian arm is Suntech's sole research unit outside China and employs about 10 scientists and engineers. The unit has not been affected by Suntech's financial struggles so far.
Several other Chinese solar companies have received aid from local governments, fanning expectations Suntech may also get a state rescue.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free