If only Warren Buffett really did want to buy Suntech

April 11, 2013
Obsession
Energy Shocks
April 11, 2013

Uh oh. Chinese solar-panel maker Suntech said today that its Switzerland-based European unit has obtained protection from creditors for two months while it restructures. Last month, the company, until 2012 the world’s biggest photovoltaic firm, saw its China operations forced into bankruptcy by Chinese banks that hold the bulk of the company’s $2.2 billion in debt.

(If you haven’t been following the Suntech soap opera, here’s the story so far.)

Suntech, which this morning had a market cap of $158 million, also revealed yesterday that it faces delisting from the New York Stock Exchange as its American depository shares have traded for under $1 for the past month. The company has six months to break the buck barrier or it gets booted from the exchange.

So bring on those Warren Buffett buyout rumors. Suntech shares spiked nearly 30% yesterday when a Chinese news outlet reported that Buffett’s MidAmerican Energy Holdings has expressed interest in acquiring Suntech.

We don’t know about that. Buffett does have a liking for solar energy—MidAmerican spent $2 billion to buy two California photovoltaic power plants from SunPower in January. And the billionaire’s interest in China is well known—Berkshire Hathaway owns a 10% stake in Chinese automaker BYD.

But whereas power plants, photovoltaic or otherwise, always have a market for their power, the manufacture of solar panels is an industry struggling with massive overcapacity and falling prices for its products, and the famous value investor probably does not see much value in that. Moreover, the Chinese government might have some objections to seeing one of its best-known global brands, tarnished though it may be, falling into American hands.

In Europe, Suntech’s subsidiary, Suntech Power International, carries relatively little debt, according to a presentation the company made to bondholders last November. But it is weighed down by “inter-company debt,” according to Suntech. A Swiss court has appointed an administrator to oversee the restructuring of the division’s debt.

For those looking for the next domino to fall, keep an eye on the Cayman Islands, where Suntech’s parent corporation – which holds about half of the company’s debt –is registered.

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