Doug Young
The latest signs coming from bankrupt solar panel maker Suntech (NYSE: STP) indicate a Beijing-led overhaul for the struggling sector may not be coming after all, and that local governments and other stakeholders may instead become the main rescue agents for these companies. Reports last year had hinted that Beijing was working on a broad plan to retrench the sector, which was suffering from massive overcapacity. But since then most of the problems at the weakest major player LDK (NYSE: LDK), have been handled by the local government and other stakeholders in its home province of Jiangxi. Now the same appears to be happening at Suntech, which was forced into bankruptcy in March.
While this approach is a bit unexpected, it does seem more practical than a single massive restructuring from Beijing, which would have been difficult to execute since each company has its own individual issues and stakeholders. This kind of approach also looks better because it’s more market oriented, with major stakeholders taking the lead in the restructuring rather than planners in Beijing. Those stakeholders are more likely to make the difficult decisions that ultimately return these companies to health, since all would like to get back some of their investment.
All that said, let’s take a look at the latest news from Suntech, the former solar pioneer that later collapsed under a pile of debt that ultimately forced it into bankruptcy. Suntech has been working closely with its bondholders and other creditors to restructure the company since the bankruptcy filing. We saw one sign of progress in late June, when the a group of bondholders named 2 directors to Suntech’s board, both with strong experience in reviving distressed companies. (company announcement)
The latest report this week indicate the process is moving steadily forward, with media saying that Suntech is talking with 5 potential investors about taking a strategic stake in its main operating unit. (English article) The report doesn’t say much about the actual potential investors, except that 3 are private sector and 2 are state-run entities. It notes that one is another major solar panel maker, which could lead to an interesting mega-merger if that buyer ultimately gets control of Suntech The report also notes that Suntech’s liabilities now total $1.75 billion.
This relatively methodical reorganization contrasts sharply with the turbulence that gripped Suntech before the bankruptcy, when founder Shi Zhengrong and the other stakeholders were fighting for control of the company. We haven’t heard Shi’s name mentioned much since the bankruptcy, while leads me to believe he no longer has much of a voice in the reorganization process. In another minor positive development for the company, Suntech also announced it had regained compliance with listing rules of the New York Stock Exchange, meaning its shares would continue to trade. (company announcement)
This orderly reorganization looks similar to what’s happening at LDK, which has been slowly selling off assets and also taking in new money from state-owned and private investors in its own bid to avoid bankruptcy. Other panel makers are also looking increasingly upbeat, after a retrenchment over the last year that saw many cut back their capacity by shuttering older facilities and laying off staff.
This kind of piecemeal restructuring looks quite market oriented, with Beijing playing a hands-off role and letting each company work out its own issues separately. The one drawback to this approach is that we may see few or no mergers, which Beijing could have engineered and would really help to bring the industry back to health more quickly. Still, this kind of approach will stand a better long-term chance of success, as it will force the companies and their stakeholders to craft solutions that are acceptable to everyone.
Bottom line: Beijing may be using a localized, more market-oriented approach to overhauling its solar sector, giving the retrenchment a better chance of success.
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.
