Suntech Power Holdings stands its best chance of meeting $541 million in debt obligations by raising money in China after analysts in New York voiced concern about the viability of the biggest solar manufacturer.
“It can sell bonds in China,” said Liu Wenping, vice president of Chinese investment research firm Pacific Epoch, an investment research company in Shanghai. “The government may also step in with a bailout.”
US investors have lost confidence with Suntech after the company this week said it hadn’t verified the existence of 560 million euros ($689 million) in German bonds pledged as collateral by an affiliated company, Aaron Chew, an analyst at Maxim Group LLC in New York, said in an interview yesterday.
The Wuxi, China-based company’s American depositary receipts fell 11 percent to $1.01 at the close in New York. Of 28 analysts covering Suntech, 18 rate it a sell and 10 rate it a hold, according to data compiled by Bloomberg. There have been no buy recommendations since May 31.
“There’s no way they’re selling more stock here — who’s going to buy it?” Chew said. He lowered his 12-month price target for Suntech to zero from 50 cents.
The “government will orchestrate some sort of buyout,” probably by a state-owned enterprise, Chew said. China doesn’t “want to see Suntech go away. But it’s not a viable operation right now. It’s not solvent. It needs to re-cap,” he said.
Financing gap
Questions about the German bonds, used as collateral for a 2010 loan Suntech guaranteed, prompted Suntech to shelve plans to raise funds by selling its stake in a European solar developer. The funds were intended to plug a liquidity gap.
Suntech is operating with a “significant working capital deficit,” according to its 2011 annual report filed in April. The deficit, representing its total current liabilities less its total assets, was $523 million at the end of last year, and Suntech said it needed more funds to remain “a going concern.”
The company’s total short-term debt at the end of last year was $1.6 billion. Long-term debt stood at $149 million, according to the annual report. The principal on convertible notes due next year was $541 million. Those bonds today dropped to 44.25 cents on the dollar, the lowest since January 3. They declined 36 percent yesterday to 45 cents, from 70.8 cents on July 24.
Suntech discovered financial irregularities as it was seeking to sell its 80 percent stake in Global Solar Fund SCA Sicar, managed by former sales representative Javier Romero.
State funding
Suntech guaranteed a 554.2 million-euro loan in 2010 from state-owned lender China Development Bank to a GSF backer, with the German bonds pledged as collateral. Those bonds may have never existed, Suntech said July 30.
Government help has already been deployed in aid of China’s solar industry, which is grappling with a global supply glut that’s curbed prices and trimmed profit margins. The government of the eastern Chinese city of Xinyu said in July it would pay a portion of the debts of LDK Solar, the solar-wafer maker that reported four consecutive quarterly losses. LDK sold 500 million yuan of notes in Shanghai in December.
In Suntech’s case, “the local government may help the company to secure loans,” Jerry Weng, a Shanghai-based analyst at KGI Securities, said today by phone. “Raising money for them in Hong Kong is impossible, as the feedback will be similar to that in Western markets.”
Credit lines
Suntech is pursuing a “possible” credit facility and is considering a local bond sale in China, Chairman Shi Zhengrong said July 30 on a conference call with analysts.
Shi defended the decision to funnel business in Europe through GSF. The affiliate “got better returns from developing downstream years ago when tariffs were higher,” Shi said in an interview yesterday.
Two calls to the Wuxi Municipal Commission of Economy and Information Technology, which is responsible for local industry and enterprise development, weren’t answered.
Suntech will be “down but not out even if it doesn’t have financing,” KGI Securities’s Weng said.
