Suntech Power Holdings Co. (STP:US), once the world’s biggest solar-panel maker, said it received a two- month forbearance on repaying $541 million of bonds as negotiations to restructure the debt continue.
More than 60 percent of the holders of the notes, which are convertible into stock, agreed not to exercise their rights until May 15, the Wuxi, China-based company said yesterday in a statement. The bonds were scheduled to mature Friday and Suntech hired UBS AG last year to advise it on extending the deadline.
The decision marks a temporary reprieve for Suntech’s management after it ousted founder Shi Zhengrong as chairman on March 4. Suntech hasn’t reported a profit since the first quarter of 2011 as a global slump in panel prices curtailed earnings. Bondholders may have few options besides granting the extension, according to Vicki Bryan, a bond analyst at Gimme Credit LLC in New York.
“Bondholders have little choice but to agree to this delay given the pronounced weakness of their unsecured claims amid Suntech’s heavy debt load,” she said in an e-mail.
Owners of Suntech’s debt face “an acute risk they won’t get repaid at all unless the company continues as a going concern outside of bankruptcy,” she said.
Suntech’s American depositary receipts, each worth one ordinary share, fell 8.1 percent to $1.15 at the close in New York. The March 15 bonds fell 7.7 percent to 30.5 cents on the dollar, according to Trace, the bond-pricing reporting system of the Financial Industry Regulatory Authority.
Not all bondholders approved the deal. Colin Peterson, who said he’s a bondholder through his distressed debt-focused hedge fund, Trondheim Capital Partners LP, in Scottsdale, Arizona, said he wasn’t aware of the forbearance agreement until it was announced.
“There are many people who own several million in bonds that are flabbergasted by this forbearance claim,” he said in an interview yesterday.
Suntech faces an increasing risk of bankruptcy, said Gordon Johnson, an analyst at Axiom Capital Management Inc.
Bondholders are “effectively equity holders,” he said. “There is a risk that U.S. equity holders could be devalued significantly.”
The rest of the bondholders that haven’t agreed to extend the date yet are unlikely to file involuntary bankruptcy “since there is no recovery for bondholders in case of bankruptcy,” Amit Jain, a Bangalore-based analyst at SJS Markets Ltd., said today.
Should some bondholders want to take the company into bankruptcy, holders of at least 25 percent of the aggregate principal amount of notes then outstanding would have to provide notice of their intent to force a default after May 15, Jain said, adding that he expects a restructuring within 60 days because bondholders have limited bargaining power.
The company is “working to find a resolution,” Suntech Chief Executive Officer David King said in the statement.
Suntech has been talking to local government agencies in Wuxi about financial support. The company named Susan Wang to replace Shi as chairwoman of the board March 4. Shi remains as a director. Wang has been a director since 2009.
Local Government Options
Shi founded Suntech in 2001 after earning a doctorate in electrical engineering from Australia’s University of New South Wales and serving as executive director of Pacific Solar Pty. in Sydney. It was the first Chinese solar company in the 17-member BI Global Large Solar index to sell shares on the New York Stock Exchange. (NYX:US) Its 2011 sales of $3.1 billion made it the world’s biggest panel maker. The company hasn’t released an earnings report since the first quarter of 2012.
“The Wuxi government may be driven to save some of the local assets owned by Suntech, while they won’t rescue the entire listed company which mainly involves overseas investors,” Wang Haisheng, a Shanghai-based analyst at Minsheng Securities Co., said today by phone. “The government is more prone to spin off the assets.”
Wuxi Suntech Power Co., a unit of Suntech, may seek bankruptcy protection between March 15 and March 20, the China Business Journal reported yesterday, citing a person it didn’t identify. State-owned Wuxi Guolian Development (Group) Co. plans to acquire the stakes in the unit afterwards and lead its restructuring, the report said. Suntech declined to comment on the report.
“It’s fairly unlikely to secure new loans from banks, even China Development Bank,” said Minsheng’s Wang. “The best support from them is not to ask for overdue loans.”
Suntech has been sued by Bank of China Ltd. over a loan contract dispute, the 21st Century Business Herald said March 7, citing a person it didn’t identify. “Suntech is aware of the litigation and we intend to resolve it amicably,” a company spokesperson, who declined to be named, said by e-mail in response to the report.
Companies that “can’t get through 2013” will prompt an industry reshuffling, the China Daily reported today, citing Chen Kangping, chief executive officer of JinkoSolar Holding (JKS:US) Co. “We believe those companies that perform well, including JinkoSolar, will be profitable in the second half of this year.”
To contact the reporters on this story: Louise Downing in London at firstname.lastname@example.org; Ehren Goossens in New York at email@example.com
To contact the editor responsible for this story: Reed Landberg at firstname.lastname@example.org