Suntech Power Holdings Co. (STP:US)’s notice that it defaulted on $541 million of bonds brings China a step closer to consolidating its solar industry, which includes four of the top six panel makers.
The company, based in Wuxi, China, received a notice of default from the trustee administering the convertible bonds, which matured March 15, according to a statement yesterday.
Suntech’s default signals that the government and China Development Bank Corp., which bankrolled the industry, is reluctant to continue funding the solar industry’s expansion, said Angelo Zino, an analyst with Standard & Poor’s Financial Services LLC.
“It just doesn’t make sense for any type of support from the government,” Zino said in an interview yesterday. “There’s not going to be that white knight out there that saves Suntech.”
The company’s American depositary receipts fell 8.4 percent in New York trading to close at 64 cents.
China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than doubled its annual production capacity to 2,400 megawatts in 2011 from 2009, according to data compiled by Bloomberg. That made it the biggest solar manufacturer. Yingli Green Energy Holding Co., which may take that title based on 2012 results, almost tripled its capacity to 1,700 megawatts during the same period.
That wrested control of the global solar industry away from German and Japanese companies. The boom in capacity led to a global glut and triggered a 23 percent decline in the price of panels in the past year, according to Bloomberg New Energy Finance.
Now, the government is seeking to pare excess manufacturing capacity and reduce the dozens of companies making solar products into a few companies that can survive.
China, forecast to become the largest solar-power market this year, may abolish subsidies for some of the largest projects and target aid for smaller ones, according to Meng Xiangan, vice chairman of the China Renewable Energy Society, which acts as a conduit between government and industry in Beijing.
For Suntech, which had more than $2.2 billion of debt (STP:US) at the end of March 2011, the outlook for survival is bleak, said Zino. The company hasn’t released earnings since then, after announcing in July that it may have been the victim of fraud involving 560 million euros ($725 million) of German bonds that may have never existed.
“The endgame for Suntech doesn’t look good,” Zino said. “They are essentially insolvent.”
The company is talking with local government agencies in Wuxi about financial support. It’s also negotiated a two-month forbearance with 63 percent of its bondholders, who have agreed not to exercise their rights until May 15.
Other bondholders haven’t agreed to the deal and are preparing to file a lawsuit against the company, according to James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York. He represents bondholders who own more than 1 percent of the debt and expects more to join the suit this week.
There is “nothing I’m aware of that will stop our lawsuit,” he said in an interview. Suntech “may be forced to file bankruptcy.”
The company is “likely” to file for bankruptcy after defaulting on the debt, Aaron Chew, an analyst with Maxim Group LLC in New York, said in a March 14 research note. “A nasty fight could be in order.”
China’s government has a number of levers it can use to restructure the industry because it’s been one of the main lenders to solar companies. Suntech, Yingli, LDK Solar Co., Trina Solar Ltd. (TSL:US), Hanwha SolarOne Co. and JinkoSolar Holding Co. were among 12 companies that obtained more than $43.2 billion in credit pledges from China Development Bank, according to New Energy Finance.
LDK, which received a bailout in July for part of its debt from local authorities in Xinyu, where it’s based, said on Jan. 31 that it received approval for a 440 million yuan ($71 million) loan from China Development Bank.
Suntech is seeking “a way forward that will take into account the rights and interests of all of its constituents, including shareholders, noteholders, lenders, customers, suppliers and employees,” Chief Executive Officer David King said in the statement.
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