Warren Buffett has the power to move stocks. He has the power to make the unattractive look attractive. The power to force a double-take on a company (or even economy) that everyone else has written off. But the power to turnaround a bankrupt company with hundreds of millions in debt and next-to-no near-term profit potential?
A rumour swept the globe on Monday night, Australian time, that the investing maestro would back a takeover of the troubled Suntech Power through a subsidiary of his iconic Berkshire Hathaway company.
Buffett’s MidAmerican Energy, which has been a heavy investor in wind and solar projects in the US over the past couple of years, was linked to Suntech through a report from a news service owned by the Hong Kong Economic Times. In fact, the rumour has only gotten legs because of a Bloomberg article on the report. Now, most are quoting it as a Bloomberg exclusive.
On Monday, the chatter forced shares in Suntech to surge almost 30 per cent before settling 15 per cent higher at 48 cents on the New York Stock Exchange. Despite nothing new forthcoming overnight, the shares shot up again, this time closing almost 30 per cent higher. All in all, the company’s shares have climbed 50 per cent in two trading days despite no sources from either company offering any inkling that a deal was in the works.
One could be forgiven for thinking it was all just a last desperate ploy from traders in Suntech to milk a little out of the situation. This theory gathers legs when you realise that several Chinese media outlets, which have regularly had scoops from inside sources at Suntech, are not convinced in the worth of the gossip. Their sources are telling them merely that the bankruptcy process is ongoing and they are largely quoting Bloomberg for the Buffett link.
Suntech, which defaulted on $541 million in international bonds last month, is a pin-up for the troubles of the solar manufacturing sector.
Once the world’s largest solar company and delivering its founder Shi Zhengrong with a net worth of over $3 billion, its fortunes turned on a supply glut that forced panel prices down and ultimately, led to a company weighed down by growing debt. In Suntech’s case the pain was exacerbated by locking in a supply contract for key component silicon a few years ago, at a price significantly higher than what it trades today.
So will Buffett really look to catch the falling knife?
One of Buffett’s most famous sayings is: “be fearful when others are greedy, and greedy only when others are fearful.”
Taking on Suntech with the amount of debt it has on its books and the red ink in its most recent financial statements (the last annual report it released – in 2011 – showed a $1 billion loss) would certainly take that saying to its limits.