Suntech Going Down?

Update: March 20:

A group of eight Chinese banks filed a petition for insolvency which has been accepted by the courts. The company will be restructured, and says it will continue to fulfill customer orders during that time. 

But whether customers will continue buying from Suntech is an open question.  

Wuxi, where Suntech is headquartered, wants the company to stay alive to protect 10,000 local jobs. 

Weiping Zhou has been appointed to head Suntech. He if former  chairman of Guolian Futures, a unit of Wuxi Guolian Development, which is partly owned by the government of Wuxi. 

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It’s hard to believe the world’s largest solar panel manufacturer, Suntech (NYSE: STP) could go bankrupt, but right now its chances are greater than 50/50 – and it could file next week.

When Suntech missed last week’s deadline to repay $540 million in bonds that came due, bondholders gave it another two months, but it doesn’t have the cash to make payments.  

Although Suntech’s founder Shi Zhengrong was forced out of his role as CEO and Chairman, he still owns 60% of the company’s stock.

What’s happening here?

"I suspect the board and Suntech’s new top management are pushing for the bankruptcy, which is probably a condition for a government-led rescue plan. Such a bankruptcy would also conveniently remove Shi completely from the picture by making all of his shares worthless," says Doug Young in AltEnergyStocks.com.

"Shi’s exit is believed to be a main condition for the government bailout, and his refusal to leave could well result in the failure of a company that is otherwise an industry leader with strong potential. To prevent such a collapse, the government should take the unusual step of forcing Shi to go so that Suntech can begin a desperately needed reorganization," he says.

In October, Suntech got approval for an emergency $31.7 million loan from the local government to help it weather its financial troubles. Local governments have propped up several solar companies in this time of need.

China wants solar players to consolidate into a handful of healthy companies. One would think Suntech might be one of them, but an analyst with Standard & Poor told Bloomberg, "There’s not going to be that white knight out there that saves Suntech."

After doubling annual production to an unsustainably high 2.4 gigawatts in 2011 Suntech is more than 2.2 billion in debt. Through the Q1 2012 it posted four consecutive quarters of losses and has failed to report quarterly earnings since then. 

All the leading Chinese solar makers expanded production to unsustainable levels because of government subsidies, which pushed a raft of leading German solar companies into bankrupty. Now, this tragic policy has snowballed, leaving the industry in heavy consolidation mode. Because they’re so entwined with local economies, local governments have stepped in with assistance in several cases.

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