Suntech Forced into Bankruptcy, Yingli Partners with GCL

Doug Young

The inevitable has finally happened at tanking former solar star Suntech (NYSE: STP), which has been forced into bankruptcy ending a months-long battle between the company’s founder Shi Zhengrong and just about all the company’s other stakeholders. In the meantime, I would be remiss not to mention another solar news tidbit that has panel maker Yingli (NYSE: YGE) forming a new strategic tie-up with GLC-Poly Energy (HKEx: 3800), in what could eventually become the first mega-merger in the struggling solar panel sector.

Let’s start with Suntech, which has been in the headlines nearly non-stop these last 2 weeks as it formally defaulted on more than $500 million in bonds that came due last Friday. Suntech founder Shi Zhengrong has been fighting nonstop not only with the bondholders, but also with his company’s bankers and officials in the city of Wuxi where Suntech is based.

Nearly everyone wants Shi to leave the company as part of any rescue plan, and the company’s various stakeholders have partly succeeded in that goal by first stripping Shi of his CEO title, and then his chairman’s title as well. But Shi remained in the picture because of his holdings of 60 percent of Suntech.

Now the government and Suntech’s state-owned lenders have finally joined forces and petitioned a local court in Wuxi to have Suntech declared insolvent, according to a company announcement. (company announcement) Chinese media reported that the court accepted the petition on Wednesday, and ordered that the company undergo a bankruptcy organization.

That should theoretically set the stage for the cancellation of Suntech’s US-traded stock, which would eliminate Shi’s last remaining influence at the company. Such a share cancellation would mark the end of a spectacular downfall for Shi, who was once China’s richest man with a fortune worth more than $2 billion.

Interestingly, Suntech’s shares were unchanged in Wednesday trade after all the latest news. But at 59 cents each, they are already at a tiny fraction of their all-time high of around $80 reached back in 2008. Some shareholders may think that Suntech stock will retain some value under the reorganization, as China may want to keep the company publicly traded. But that may be a dangerous gamble since such a move would leave Shi with some influence at the company. Accordingly, I would put the chances of Suntech’s stock becoming worthless at greater than 50 percent.

Meantime, let’s look quickly at Yingli’s new tie-up with GCL-Poly. (company announcement) There’s not much detail in the announcement, which looks like a good fit since Yingli is a leading solar panel maker and GCL-Poly is a top supplier of material used to make those solar panels. Both companies are also among the largest in their respective spaces, though GCL-Poly’s market cap is quite a bit bigger than Yingli. If this partnership goes smoothly, I could see the 2 companies eventually combining, producing a new leading player for this beleaguered sector that is in desperate need of more consolidation.

Bottom line: Suntech’s upcoming bankruptcy reorganization is likely to result in the cancellation of its stock, wiping out founder Shi Zhengrong’s fortune and removing him from the company.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.