Suntech Won’t Object as China Banks Seek Solar Bankruptcy

Suntech Power Holdings Co., once the world’s top solar manufacturer, may become the largest renewable-energy insolvency after its main unit was pulled into bankruptcy proceedings in China.

Eight Chinese banks filed a petition for insolvency and restructuring of its main solar manufacturing unit, Wuxi, China-based Suntech said today in a statement. Suntech said it won’t object to the filing in Wuxi Municipal Intermediate People’s Court. Suntech defaulted last week on $541 million of bonds.

Shi Zhengrong founded Suntech in 2002 and took the company public three years later, becoming one of the world’s first solar billionaires. Backed by government loans, the company more than quadrupled its panel-production capacity to 2,400 megawatts a year from 2007 to 2011, dominating the industry.

“It’s truly the end of an era,” said Jenny Chase, lead solar analyst at Bloomberg New Energy Finance in Zurich. “For years, it was the world’s biggest solar manufacturer.”

Initiating proceedings in China may make it difficult for creditors in other countries to collect, said Christopher Peterson, a partner at the law firm Kaye Scholer LLP. “There is a fundamental disadvantage that non-Chinese lenders have in a bankruptcy.”

Trading of Suntech’s American depositary receipts, each worth one ordinary share, was halted today after they slumped 28 percent to 42 cents before the start of regular trading. They declined 46 percent in the past week through yesterday as the company announced efforts to renegotiate the $541 million in bonds that matured March 15 and went unpaid. That led the company’s other creditors to call in debts.

Other Failures

Suntech’s collapse follows bankruptcies in Germany of manufacturers such as Q-Cells SE, previously the biggest solar manufacturer. Sharp Corp. of Japan, which led solar cell-making until 2006, has been scaling back operations overseas. In 2011, Solyndra LLC collapsed despite $535 million of support from the U.S. Energy Department.

Suntech said the court process for its Wuxi Suntech Power Holding Co. unit will help it restructure liabilities.

About three-fourths of Suntech’s total cell manufacturing capacity is in Wuxi, and about 1,200 megawatts of its 1,800 megawatt total can be attributed to the Wuxi Suntech unit, according to Suntech’s last annual report. The remaining capacity is in joint ventures. The unit makes both cells and panels.

Cayman Parent

Suntech’s corporate parent is incorporated in the Cayman Islands, and the unit in insolvency is a Chinese company. It has additional cell and module production in Wuxi, Shanghai and Luoyang.

Chinese solar companies, backed by credit from the China Development Bank Corp. expanded capacity to wrest control of the industry from German and Japanese competitors. Panel demand slowed in 2012 as governments in Europe and North America pared subsidies. That created a global oversupply, driving down prices and eating into margins and profits.

Suntech hasn’t reported a profit since the first quarter of 2011.

If the court approves the insolvency, the company intends to keep producing panels to meet customer orders, Suntech said in the statement. It didn’t name the banks involved in the filing. The official Xinhua News Agency reported that the Wuxi Intermediate Court already has started implementing “bankruptcy reorganization” at Wuxi Suntech.

Solar Consolidation

Suntech’s failure will have more direct impact on its customers, creditors and suppliers than on the industry, Lian Rui from Solarbuzz, an industry consultant, said by phone.

“Suntech’s case is symbolic in industry consolidation,” Lian said. “We will see more companies to go bankrupt.”

The company continues to “work closely with all of our stakeholders and take the necessary steps to put Suntech back on track,” David King, chief executive officer of Suntech, said in the statement. “While we evaluate restructuring initiatives and strategic alternatives, we are committed to continuing to provide high-quality solar products to our global customer base.”

Shi was ousted as chairman on March 4 as Suntech sought financial aid from the regional authorities in Wuxi. That assistance hasn’t materialized as advisers to government agencies said China is seeking to shake the weakest companies out of the $25 billion-a-year solar panel industry.

Other Chinese solar companies will probably “fail in the consolidation this year,” Wang Xiaoting, a Beijing-based analyst for New Energy Finance, said by phone.

The survivors will be companies with better cash flow and diversified operations, including production plants and sourcing agreement in other countries, she said.

China’s Industry

Four of the six top panel manufacturers are based in China. Suntech ranked fifth in capacity last year behind Trina Solar Ltd., Yingli Green Energy Holding Co. Ltd., First Solar Inc. and Canadian Solar Inc., according to New Energy Finance.

“Suntech’s bankruptcy rather strengthens the position of other leading suppliers,” said Stefan de Haan, principle solar analyst at the consultant IHS Inc. in Munich. “The consolidation in the PV industry will continue. There are still many hundreds of suppliers, and there is still a fundamental overcapacity in the market.”

Suntech had more than $2.2 billion of debt at the end of March 2012, the data show.

The company said March 11 it had obtained the backing of 63 percent of its bondholders to delay by two months payments on the bonds.

Bondholders Clash

Other bondholders didn’t agree 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 lawsuit this week.

Colin Peterson, the managing director of Scottsdale, Arizona-based Trondheim Capital Partners LP, a distressed-debt hedge fund, has said his company owns enough Suntech bonds to consider suing Suntech. Suntech didn’t contact Trondheim before announcing the forbearance, he said.

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

The appointment followed speculation from Maxim Group LLC that Suntech may be merged into a state-backed entity after a bankruptcy filing.

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