Doug Young
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Someone should write a book about solar panel superstar Suntech (NYSE: STP), whose the incredible rise and spectacular fall has taken yet another intriguing twist with word that some of its major assets have been seized by a court in Italy. The Italian angle is just the latest turn in this international story of a company founded by an Australian-educated Chinese engineer, which once look set to revolutionize the solar energy sector, only to be forced into bankruptcy when the sector plunged into a massive downturn. From a more practical perspective, I suspect this latest development will prolong Suntech’s bankruptcy reorganization, since its creditors may have been hoping to liquidate these Italian assets to repay some of the company’s massive debt.
The assets in question are all owned by Global Solar Fund (GSF), a company that was building solar plants in Europe, including Italy. In many ways, GSF has been one of Suntech’s biggest Achilles heels and continues to haunt the company with this latest development. The fund was set up by Suntech founder and former CEO Shi Zhengrong, who wanted to use the company to build and operate solar power plants in Europe using solar panels supplied by Suntech.
The only problem was that Shi declined to disclose the close financial relationship between his firm and GSF, even as Suntech sold millions of dollars worth of solar panels to GSF and recorded those sales as revenue. Such sales were technically legal, though many would later argue this kind of relationship was questionable because Suntech was basically selling its panels to a company it controlled. Suntech was finally forced to disclose the relationship last summer due to an issue involving a loan guarantee, kicking off a downward spiral that ultimately ended with its bankruptcy declaration in March.
Reports shortly after the bankruptcy declaration said that Suntech was looking to sell its stake in GSF to repay investors and recapitalize as part of its reorganization. (previous post) Those reports said GSF had an enterprise value of $800 million, though its real value was probably far less since many of its plants were built before the industry’s current downturn that has seen panel prices tumble by more than half over the last 2 years.
Suntech’s latest disclosure indicates that a sale of its GSF stake may be difficult or impossible in the near term, since many of GSF’s assets now remain in limbo following their seizure by Italy’s courts. (company announcement) According to the announcement, Italian courts have now seized some 37 solar plants owned by GSF, accounting for about one-fifth of GSF’s total power-generation capacity.
The reasons for seizure look largely unrelated to Suntech’s own woes, and are more due to local issues including improper authorizations and pollution. Still, the seizure of these assets is the last thing that Suntech needs as it tries to reorganize and emerge from bankruptcy. Creditors who were hoping to get any money from a GSF sale will now have to probably put those plans on hold, potentially for years, as GSF’s case plays out in the Italian courts.
Reports earlier this month indicated that Suntech was nearing the end of its bankruptcy reorganization, as it reached deals with its major bondholders and worked to find new investors for its major China-based assets. (previous post) I suspect the creditors were counting on at least some funds from a sale of GSF, perhaps hoping to get $200 million or more. This latest seizure of GSF assets could slow the reorganization process, meaning we may have to wait until next year to see Suntech finally emerge from bankruptcy.
Bottom line: The seizure of Suntech-controlled assets by an Italian court could set back its bankruptcy reorganization by several months.
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.
