Biggest Solar Collapse in China Imperils $1.28 Billion

Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.

The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency. The court accepted the petition today.

“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York, said in an interview.

The failure underscores how risks to investors in the solar industry have spread after the collapse of Solyndra LLC in 2011 and bankruptcies in Germany of companies including Q-Cells SE (QCE), previously the biggest solar manufacturer. The bankruptcy will make financing more difficult, Xie Jian, the chief operating officer of JA Solar Holdings (JASO) Co., said today in an interview.

Bondholder Stakes

Mount Kellett Capital Management LP, Driehaus Capital Management LLC and Pioneer Investment Management Inc. were the Suntech’s largest bondholders, with about 23 percent of the debt, according to December public filings compiled by Bloomberg.

The largest outside owners of Suntech’s American depositary receipts are Renaissance Technologies Corp., Invesco Ltd. (IVZ) and Shah Capital Management. None of the bondholders or shareholders were available for comment.

Sharp Corp. (6753) of Japan, which led solar cell-making until 2006, is considering scaling back operations overseas. Solyndra collapsed despite $535 million of support from the U.S. Energy Department.

Suntech said last week that almost two-thirds of bondholders agreed to defer their rights for two months to give the company time to restructure its debt.

It’s unclear how the Chinese filing will affect U.S. creditors, said James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP in New York, who represents bondholders who own more than 1 percent of the debt.

Seeking Influence

“I can’t speak so much to the Chinese process,” Millar said in an interview. “Does a bondholder of a holding company have standing in a Chinese operating unit’s bankruptcy? I think the right answer is that the bondholders should have a seat at that table.”

Photographer: Qilai Shen/Bloomberg

An employee walks into Suntech Power Holdings Co. headquarters, which is covered by photovoltaic panels, in Wuxi, Jiangsu Province, China. Close

An employee walks into Suntech Power Holdings Co. headquarters, which is covered by... Read More

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Photographer: Qilai Shen/Bloomberg

An employee walks into Suntech Power Holdings Co. headquarters, which is covered by photovoltaic panels, in Wuxi, Jiangsu Province, China.

Investors may lose everything, said Aaron Chew, an analyst with Maxim Group LLC in New York.

“This is about the Western bondholders versus the Chinese banks fighting for the assets, and there’s not enough to go around,” he said. “It’s going to be a nasty fight. I think this becomes a legal issue. One of the last companies I’d like to pick a fight with is Bank of China over an asset in China.”

Suntech raised $742.6 million in two stock offerings in New York, in 2005 and 2009. Combined with the $541 million principal on the convertible bonds that matured March 15, it’s received $1.28 billion.

Shares Slump

The ADRs, each worth one ordinary share, plunged 26 percent to 43 cents at 10:42 a.m. in New York. Earlier they reached 30 cents, a record low and a decline of more than 99 percent from the high of $88.35 in December 2007. Trading was halted yesterday after the company announced the bankruptcy filing.

“You can forget about the equity shareholders,” said Zino of Standard & Poor’s. “I don’t think there’s any way they’re getting anything out of this.”

China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than quadrupled its annual production capacity to 2,400 megawatts in 2011 from 2007, according to data compiled by Bloomberg. That made it the biggest solar manufacturer at the time.

The U.S. and European governments cut back on renewable-energy subsidies, slowing demand for solar panels and creating a global oversupply that drove down prices 20 percent last year. Suntech hasn’t reported a profit since the first quarter of 2011.

UBS Hired

The company hired UBS AG in October to help it renegotiate the debt, and has been talking to local government agencies in Wuxi about receiving financial aid. It announced March 11 a forbearance deal with 63 percent of its bondholders, who agreed not to exercise their rights until May 15.

Not all the bondholders agreed to the deal and some said they were never contacted by Suntech.

Complicating the process is the fact that the Chinese bankruptcy filing names Suntech’s main unit, Wuxi Suntech Power Holdings Co., which is subject to Chinese law.

The parent company is incorporated in the Cayman Islands. The bondholders are creditors of the parent company, and the bond prospectus said the debt is governed by New York law. “Any litigation in China may be protracted and result in substantial costs,” Suntech said in its 2011 annual report.

U.S. creditors must contend with “a fundamental disadvantage that non-Chinese lenders have in a bankruptcy,” said Christopher Peterson, a partner at the law firm Kaye Scholer LLP. “They would need to get the consent of a Chinese court to get action in China, which the Chinese lenders don’t have to face.”

Production Continues

Suntech said it remains in production. That means the company’s failure won’t do much to alleviate the global panel glut, said Gordon Johnson, an analyst with Axiom Capital Management Inc.

“That capacity continues to exist in the market, which is clearly not good for the market,” he said in an interview.

Four of the six top panel manufacturers are based in China. Suntech fell to fifth in production capacity last year behind China’s Trina Solar Ltd. (TSL) and Yingli Green Energy Holding (YGE) Co., Tempe, Arizona-based First Solar Inc. (FSLR) and Canadian Solar Inc. (CSIQ), according to Bloomberg New Energy Finance.

Suntech named an executive from a government-backed development company in Wuxi to serve as its president March 19. Zhou Weiping previously worked as chairman of Guolian Futures Co., a unit of Wuxi Guolian Development Group Co., which is partly owned by the regional authority.

The company lost $1.01 billion in 2011 and was expected to report a loss of $460 million for 2012, the average of three analysts’ estimates compiled by Bloomberg.

“If you’re an investor and didn’t see this coming, it’s on you,” Alex Morris, an analyst at Raymond James & Associates Inc. in Houston, said in an interview.

To contact the reporters on this story: Ehren Goossens in New York at egoossens1@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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