Suntech casts shadow over China capital raisings
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Suntech has gone from solar panel maker to financial black hole. The stricken company is fighting with creditors who want to see it liquidated after it defaulted on interest payments in March. Proposals to sell assets and take Chinese government cash seem unlikely to help investors avoid huge losses. For investors it’s a lesson in what happens when things really go wrong with Chinese companies.
Holders of Suntech’s bonds are owed $541 million. But local lenders, which have extended $1.7 billion or so, are first in line. Suntech’s bankrupt Chinese subsidiary has agreed to sell most of its assets to a Hong Kong-listed solar panel maker for $490 million, but it’s unlikely any of that cash will reach bondholders of the overseas holding company. Liquidation offers closure, but it could yield mere pennies.
Suntech’s creditors are now left at the mercy of politicians in China – rarely a good place to be. A local state-owned vehicle, Wuxi Guolian, is offering $150 million of cash to recapitalise the U.S. listed vehicle, plus some unspecified assets, likely to mean bits of other local solar manufacturers. In return, bondholders would get equity, but it’s hardly attractive. The bonds’ current market value of 21 cents to the dollar may be as good as it gets.
With so many moving parts, valuing Suntech is a mug’s game. The $270 million suggested by the combined market value of the company’s bonds and shares on Nov. 7 looks heroic. Even if Wuxi Guolian puts up the cash and creditors swap some debt for equity, existing shareholders will be heavily diluted. To add to the dysfunction, the New York Stock Exchange has said it will suspend trading in the shares on Nov. 11.
While Suntech’s demise drags on, investors in other Chinese companies should watch closely. U.S.-listed Chinese technology stocks are flying even though their investors have the same tenuous claim on mainland assets, and are equally at risk of political meddling. Tech companies’ revenue growth may offer a wild ride on the way up, but Suntech’s grisly unwinding shows it gets even wilder on the way down.