Chinese solar giant cuts deal with bondholders and avoids bankruptcy—for now

March 11, 2013
Obsession
Energy Shocks
March 11, 2013

Chinese solar company Suntech has staved off bankruptcy. At least for another two months.

The solar panel manufacturer, which is carrying $2 billion in debt, owes payment on $541 million in convertible notes that come due Friday (March 15). But today the company, until recently the world’s largest photovoltaic module maker, said it had struck a deal with more than 60% of its bondholders, who have agreed to hold off on exercising their rights until May 15 should Suntech fail to make payment Friday.

“The forbearance agreement demonstrates bondholders’ support for Suntech and provides an excellent platform to further discussions towards a mutually agreeable restructuring of the notes,” Suntech chief executive David King said in a statement. “We are making progress and are working to find a resolution soon. At the same time, we are continuing our cost and operational review to further improve our efficiency.”

China controls about 80% of the world’s solar-panel manufacturing capacity and Suntech’s fate is being watched closely since other big Chinese solar companies such as Trina and LDK are also struggling under crushing debt loads and overcapacity, as photovoltaic panel prices continue to fall.

The failure of Suntech or other Chinese solar companies would affect the global supply and pricing of solar panels. The shakeout also affects installers in Europe and the US, which could end up liable for any unfunded warranties on panels they’ve installed.

If the Chinese government lets Suntech go bankrupt, it will signal that the industry will be consolidated to shrink overcapacity—according to market research firm GTM Research, worldwide photovoltaic manufacturing stands at 70,000 megawatts while demand is only 31,000 megawatts.

Many analysts, however, believe that the regional Wuxi government that initially bankrolled Suntech will ultimately rescue it, given Suntech’s status as a global Chinese brand and supplier of thousands of local jobs.

Without a government bailout it’s difficult to see how Suntech could renegotiate the convertible notes. While the notes are convertible to equity, Suntech as of Monday had a market value of just $212 million and its shares were trading at $1.16.

Monday’s announcement comes a week after Suntech’s board of directors fired founder Zhengrong Shi as executive chairman—a move Shi is disputing—and settled litigation with a former partner that left the company responsible for a €554 million ($721 million) loan guarantee.

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