Struggling China's Suntech Gets Loan

The world’s largest solar panel maker, China’s Suntech Power (NYSE: STP) is getting an emergency $31.7 million loan from the local government to help it weather its financial troubles. 

The lifeline comes from the city of Wuxi in Jiangsu province, where the company is based. The mayor created a task force to help Suntech. He offered a package to Suntech from a consortium of banks, including Bank of China.

This is the second time a Chinese local government has come to the rescue of a solar maker – in July, Xinyu government offered to pay part of LDK Solar’s debt. State-owned China Development Bank is expected to recommend stronger financial support for Suntech, Yingli Solar (NYSE: YGE) and Trina Solar (Nasdaq: TSL).

The money for Suntech is a bridge loan to help repay some of its debt. The company faces a debt payment of about $541 million early in 2013, and owes more than $1.6 billion in the short term. Suntech announced it would cut 1500 jobs and reduced production plans for the fourth quarter.

Suntech has not commented publicly on the development, which comes two weeks after the New York Stock Exchange (NYSE) sent the company a delisting warning, because its average per-share closing stock price slipped below $1 for more than 30 consecutive days.

It has six months to meet NYSE requirements and has notified the exchange of "its intention to cure this deficiency within the prescribed timeframe."

Like many other solar panel makers, Suntech is being battered by tough market conditions. In mid-September, it announced a downsizing initiative that will affect approximately 1,500 workers, pointing to US solar tariffs and an uncertain trade situation in Europe as reasons behind the measures.

But questionable financing decisions are also weighing down Suntech’s market capitalization – which lost more than 40% of its value in August alone.

The company faces at least three class action suits related to its admission in July that it was unable to verify the existence of up to $689 million in German bonds that it was supposed to receive as collateral for its investment in Global Solar Fund (GSF). 

GSF shareholder Javier Romero has been accused of using $700 million in fake German bonds to help guarantee some of the fund’s financing.

GSF owns and operates approximately 142 megawatts (MW) of solar planets in Italy. Its operations were frozen in mid-August, an independent manager was appointed, and an Italian court filed criminal charges against days later

The charges accuse GSF of illegally building solar plants in order to milk Italian subsidies. If the case is successfully prosecuted, more than $100 million worth of plants that it controls could be dismantled.

For more analysis of Suntech’s financial situation, see this Reuters story: 

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