Last year Chinese solar giant Suntech revealed that it may been the victim of a €560 million ($730 million) fraud allegedly perpetuated by its partner in a European joint venture called Global Solar Fund (GSF). Today, Suntech announced it had settled litigation against the partner—by acquiring his stake in GSF.
It was just the latest strange twist in a week that so far has seen the photovoltaic panel maker’s board of directors fire Suntech’s founder as executive chairman just days before the company must make a $541 million payment on convertible notes. Suntech faces bankruptcy unless a deal can be struck with bondholders or the Chinese government. The founder, Zhengrong Shi, meanwhile, has refused to step down, calling his removal “invalid.”
The GSF scandal has played a key role in Suntech’s fall from the world’s biggest solar panel manufacturer to a company struggling to survive under the weight of $2 billion in debt. Suntech’s fate after the notes come due on March 15 will in all likelihood signal whether the Chinese government plans to bail out its solar industry, home to 80% of the world’s photovoltaic manufacturing capacity, or allows other companies burdened by debt to collapse as well.
The rapid expansion of photovoltaic manufacturing in China helped drive a 75% fall in panel prices over the past three years, unleashing a solar building boom in the US and Europe. The failure of Suntech or other big Chinese solar companies would have a global impact on panel prices and supply, potentially leaving developers and installers liable for hundreds of millions of dollars in warranties.
The GSF saga is worthy of a corporate thriller and it remains to be seen if today’s settlement will clear the way for Suntech to move on, or whether it raise even more doubts about the company’s management and strategy.
The story began in 2008 when Suntech formed GSF with a former associate named Javier Romero to invest in European developers that would deploy Suntech photovoltaic panels. Suntech took an 80% stake in the venture while Shi and an entity Romero controlled called GSF Capital took 10% each. Suntech and Shi together invested $228 million into GSF. Shi and Suntech’s chief technology officer, Stuart Wenham, served on GSF’s board of managers and held half of the votes
To finance the solar projects, Suntech guaranteed a €554 million ($721 million) credit line from the government-run China Development Bank. Romero’s CSF Capital in turn pledged €560 million ($730 million) in German bonds as security for Suntech’s guarantee.
The partnership proved profitable for Suntech. The company sold $346.8 million in solar panels to GSF’s portfolio companies between 2009 and 2011. In 2009 alone, those sales accounted for about 7% of Suntech’s total revenues.
Then last July Suntech held a press conference to announce that while performing due diligence for a possible sale of GSF it discovered that those German bonds may have never existed.
The story took another twist when prosecutors in Brindisi, Italy, charged GSF employees with fraud related to the construction of solar power plants that received government subsidies, and seized some of the projects.
Now Suntech apparently has decided to extricate itself from the GSF debacle as quickly as possible.
“The settlement does not involve an admission of liability on the part of GSF Capital or Mr. Romero,” Suntech said in a statement today.
Suntech remains liable for the China Development Bank guarantee but the settlement clears the way for a sale of GSF to raise cash. The company said, however, in a November 2012 presentation to bondholders that it was uncertain “when GSF may be able to be monetized and at what price.”