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Suntech in Settlement Over $734 Million Fraudulent Bonds

Suntech Power Holdings Co., the Chinese solar-panel maker with a $541 million-bond that will mature in a week, reached a settlement with an affiliated company and a former sales agent involved in a potential fraud.

Under the agreement announced yesterday, neither the agent, Javier Romero, nor the company, GSF Capital Pte Ltd., will admit any liability and GSF Capital will dispose of its stake in a fund owned by Suntech and the Wuxi, China-based company’s former chief executive officer.

Settling the legal dispute lets Suntech focus on its larger issue, finding a way to pay the convertible bond that matures March 15, according to Pavel Molchanov, analyst at Raymond James & Associates Inc. in Houston.

The agreement is a “small bit of good news” for the company, Molchanov said in an interview. It’s overshadowed by the “real problem for Suntech, which awaits when their convertible debt comes due.”

Suntech “doesn’t have anywhere near the amount of cash to pay that” and is “functionally insolvent by Western standards,” Molchanov said.

Suntech said in July it had uncovered potential irregularities in a fund managed by Romero, Global Solar Fund S.C.A., as it sought to sell its stake in the venture. GSF Capital had pledged German bonds worth 560 million euros ($734 million) as collateral for financing guarantees from Suntech. Those bonds may have never existed, Suntech said.

GSF Stake

Under the settlement, GSF Capital will dispose of its stake in Global Solar Fund “for an agreed consideration.” Suntech’s stake in the fund will increase to 88.15 percent from 79.3 percent.

A company owned by Shi Zhengrong, Suntech’s founder who was dismissed as chairman March 4 and ousted as CEO in August, will boost its ownership in Global Solar Fund to 11.85 percent from 10.7 percent. When the deal is complete, Suntech will consolidate the fund.

Shi said March 5 that Suntech has had “no solution” for the company’s debt and that he’s been shut out of meetings for the past month.

Shares of Suntech, the largest solar-panel company by shipments in 2011, gained 4.3 percent to $1.22 at the close in New York. The stock has slumped 20 percent this year.

The company may get government assistance to avoid defaulting on the debt, Molchanov said.

“I think it’s a dreadfully run company, but they also have a bit of a too-big-to-fail aspect,” he said. “Because it’s a flagship Chinese company, I do expect some sort of bailout.”

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