Thursday, August 23, 2012

Suntech Funding Needs Won’t Be Met by Wall Street, Analysts Say

Suntech Power Holdings Co. (STP), the Chinese solar manufacturer that may have been defrauded by an affiliate, has about $541 million in debt that will come due in March and won’t get any help from Wall Street, three analysts said.

U.S. investors have lost confidence in the world’s largest solar company after it said it hadn’t verified the existence of 560 million euros ($689 million) in German bonds, Aaron Chew, an analyst at Maxim Group LLC in New York, said in a telephone interview yesterday. He lowered his 12-month price target for Suntech to zero from 50 cents.

Questions about the bonds, used as collateral for a 2010 loan Suntech guaranteed, prompted Suntech to shelve plans to raise funds by selling its stake in a European solar developer, and Chew said the company may need intervention from China to avoid bankruptcy.

“There’s no way they’re selling more stock here -- who’s going to buy it?” Chew said. The Chinese “government will orchestrate some sort of buyout,” probably by a state-owned enterprise, because the country doesn’t “want to see Suntech go away. But it’s not a viable operation right now. It’s not solvent. It needs to re-cap.”

Suntech’s American depositary receipts fell 16 percent to $1.13 at the close in New York, the lowest since they began trading in December 2005.

Capital Deficit

Suntech is operating with a “significant working capital deficit,” according to its 2011 annual report filed in April. The Wuxi, China-based company’s deficit, representing its total current liabilities less its total assets, was $523 million at the end of last year, and it said it needed “additional funding to sustain our business as a going concern.”

The company’s total short-term debt at the end of last year was $1.6 billion and its long-term debt was $149 million, according to the report. Its principal on convertible notes due next year was $541 million.

“We think the company will never be able to repay its debt, and we have consistently called the company a poor steward of investor capital,” Jesse Pichel, an analyst with Jefferies Group Inc. in New York, said yesterday in an e-mail. “We have recommended that investors sell the stock for over a year and never had a buy.”

Of 28 analysts covering Suntech, 18 rate it a sell and 10 rate it a hold, according to data (STP) compiled by Bloomberg. It was last rated a buy on May 31.

Suntech discovered financial irregularities as it was seeking to sell its 80 percent stake in Global Solar Fund S.C.A. Sicar, which is managed by a former sales representative, Javier Romero.

Suntech guaranteed a 554.2 million-euro loan in 2010 from state-owned lender China Development Bank Corp. to a GSF backer, with the German bonds pledged as collateral. Those bonds may have never existed, Suntech said July 30, and the planned sale is on hold.

‘Weak’ Diligence

“I wouldn’t condemn Suntech management here but it looks like their due diligence with GSF was weak,” said Pavel Molchanov, an analyst at Raymond James & Associates in Houston. “It would be exceedingly difficult to sell more shares in the U.S. and would be at a significant discount to their current price. Most likely they will get a bridge loan from the CDB or another lender.”

Chairman Shi Zhengrong defended the decision to funnel business in Europe through GSF. The affiliate “got better returns from developing downstream years ago when tariffs were higher,” Shi said in an interview yesterday.

Australian Origins

Shi founded Suntech in 2001 after earning a Ph.D. in electrical engineering from Australia’s University of New South Wales, and serving as executive director of Pacific Solar Pty. in Sydney. It was the first Chinese solar company in the 17- member BI Global Large Solar (BISOLAR) index to list its shares on the New York Stock Exchange, according to data compiled by Bloomberg, and its 2011 sales of $3.1 billion made it the biggest panel maker in the world.

Prices for solar panels fell 47 percent in the past year as waning government support in Europe and the U.S. slowed demand while expanding production capacity, especially in China, created a global oversupply.

The China Development Bank since 2010 has made available $47.3 billion to support the country’s wind and solar manufacturers, though this credit line has not been fully tapped, according to a Bloomberg New Energy Finance study in October. Of the $7.3 billion pledged to Suntech, Chew estimates the company has drawn on less than $1 billion.


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