Suntech on the brink of fizzling out
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.
Frequently Asked Questions about this Article…
According to the article, Suntech is teetering on the edge of bankruptcy and may be declared in default as soon as Monday over $US541 million ($520 million) in convertible bonds that were initially due last Friday. A trustee administering the bonds sent a notice of default, which could allow bondholders to take the company to court in the US.
The article says Suntech — like many rivals — pursued very aggressive growth (doubling output each year for six or seven years), which helped create a global oversupply of solar panels. That glut collided with weaker buyer credit during the financial crisis, leaving supply far in excess of demand and forcing firms to compete on cost.
Suntech has $US541 million in convertible bonds at the centre of the crisis. While 63% of bondholders agreed to delay payment for two months, other holders have indicated they may sue. The trustee’s notice of default opens the door for legal action in the US, a development investors should be aware of when assessing the company’s credit and equity risks.
Suntech once rose to about $US16 billion in value, but the article reports its shares have fallen more than 99% from those highs. Contributing factors include the supply glut, possible fraud losses totalling more than $700 million, and senior management turmoil — all of which undermined investor confidence.
Dr Shi, who trained at the University of NSW and became an Australian citizen before returning to China in 2001, was stripped of his CEO role in August and later lost the chairmanship earlier this month. The article says he still apparently holds the largest single stake in Suntech — about 30% — but could see the value of that holding wiped out if the company is declared bankrupt.
The article states Suntech’s Australian arm, the company’s sole research unit outside China, employs about 10 scientists and engineers and has not been affected by Suntech’s financial struggles so far.
The piece notes that several other Chinese solar companies have received local government aid, which has fuelled expectations that Suntech may also get a state rescue. The article presents this as a possibility but does not confirm any rescue plan.
Based on the article, investors should monitor any formal declaration of default or bankruptcy, bondholder legal actions and trustee notices, announcements about fraud investigations or management changes, and any news of potential state rescue or government support for the company.
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