Suntech Short Positions Closed After Bankruptcy Cuts Stock PriceMarc Roca
Short interest in Suntech Power Holdings Co. has plunged to its lowest level since 2007, suggesting investors have closed out positions betting it will decline after the Chinese solar company’s main unit went bankrupt.
The portion of outstanding American depositary receipts sold short fell to as little as 2.2 percent on April 3 from 6.5 percent on March 18, according to data from Markit Group Ltd., a London-based researcher. The percentage was 3.2 percent April 11.
“Short sellers have gradually covered their positions in Suntech, taking profits as the stock neared zero,” Alex Brog, a director at Markit, said by phone. “Now that the shares can’t fall much further, almost all are out.” Suntech’s ADRs are each worth one ordinary share.
Suntech, once the top solar panel manufacturer, may become the largest renewable-energy insolvency after its main unit was pulled into bankruptcy proceedings in China on March 20. The ADRs that reached as high as $88 in January 2008 fell to as little as 36 cents on April 1 and closed at 75 cents in New York yesterday.
Short sellers profit by selling stock they’ve borrowed and recouping the cost later when the price of the share has fallen. Short interest for the Wuxi, China-based company, which started trading in mid-2006, reached almost 20 percent two years ago. Solar shares are the most shorted of any industry, Brog said.
Short positions on most Chinese solar stocks have been easing since 2011. The surge in First Solar Inc.’s shares starting with an April 9 forecast for higher-than-expected sales helped boost shares across the industry this week.
Yingli Green Energy Holding Co. Ltd., the largest panel maker, rose 21 percent on April 9. About 9.9 percent of Yingli shares were sold short April 11 compared with 4.9 percent for LDK Solar Co. Ltd.
“If you’re short of stock and you’re confident it’s going to go to zero, you’re incentivized to stay short the stock,” said Gordon Johnson, an analyst at Axiom Capital Management Inc. in New York. For Suntech, he said, “somebody must have assumed that positive news would come out and the stock would be volatile and probably just wanted to close out short positions.”
Overall, short positions in the industry are much lower than in past years because the companies’ capitalizations are now well below the limit for most of the biggest funds, he said.