Suntech Plunges as Reckoning Day Approaches

Doug Young

I rarely write about the same company 3 times in a single week, but in this case the developments are coming so quickly at plunging solar panel pioneer Suntech Power (NYSE: STP) that an update to this fast developing story is necessary. Company watchers will know that Friday was the official deadline for Suntech to repay some $540 million in bonds that have just come due. The company has no cash to make that repayment, and earlier this week received a 2 month extension on that deadline from a majority of bondholders. (previous post) Meantime, Chinese media reported earlier this week that Suntech could declare bankruptcy sometime between March 15-20, which means such a move could come as soon as today if the reports are true. (English article)

Not surprisingly, all the talk has taken a toll on Suntech’s already-battered shares. Suntech stock has lost nearly half of its value this week, including a nearly 20 percent plunge on Thursday in New York that sent it to an all-time low. Shares were down by 50 percent at one point on Thursday from their previous close, as the company’s trading volume tripled from its usual levels.

The trading was so frantic that the New York Stock Exchange took the relatively unusual step of asking Suntech to issue a statement on what was happening. Not unexpectedly, Suntech said it was unaware of any undisclosed events that may have triggered the huge sell-off and surge in trading volume. (company statement) Suntech added that it had no plans to repay the bonds that were maturing on March 15, and added its previous disclosure that 60 percent of the bondholders had agreed to a 2 month extension.

So what’s happening here, and will Suntech in its current form live to see another week? I suspect the sell-off was a direct result of the bankruptcy rumors, combined with investors skittishness as the official March 15 deadline approached. Accordingly, many people who previously hoped to make some quick money on a company turnaround finally decided to dump their shares before Suntech’s stock became worthless, which is what usually happens with a bankruptcy reorganization.

As to the future, the next week will certainly be a pivotal one for Suntech but may not necessarily mark the end of the current saga. Suntech’s founder Shi Zhengrong has been forced from both the CEO and chairman’s job at his company, but still remains its controlling stakeholder with 60 percent of its stock.

I suspect the board and Suntech’s new top management are pushing for the bankruptcy, which is probably a conditions for a government-led rescue plan. Such a bankruptcy would also conveniently remove Shi completely from the picture by making all of his shares worthless.

It does seem like Shi’s control of the situation is weakening daily, and I honestly wouldn’t be surprised if the board manages to force a bankruptcy filing against his will. But Shi is also a very determined man, so I wouldn’t completely consider him defeated just yet. At the end of the day, I would put the chances for a bankruptcy filing by this time next week at around 60 percent.

Bottom line: Suntech’s day of reckoning could come in the next week, with the chances of a bankruptcy filing during that time at greater than 50 percent.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.