Until recently, Wuxi Suntech Solar Energy Electric Power Company, a subsidiary of Suntech Power Holdings Co., Ltd. (OTCMKTS:STPFQ), was only mentioned as an example of how bad this year was for the Chinese solar energy industry. Once it filed for reorganization in order to dodge bankruptcy, many started to warn that this company was a reflection of everything that is wrong with the Chinese solar market.
“Failure of Suntech is not failure of one company, but failure of the whole industry. Assessment of Suntech’s credit risk is not based on financial reports, stock indices or financial due diligence reports. It is based on fundamental rules of profit model in this industry,” said Gongdi Xun, vice president of China Chengxin Information Technology Co. He further explained that this blind belief in the local government’s power to back credits from companies became a substitute for analyzing the real development possibilities of companies. Today, we hear a different story.
After reaching an agreement with more than 500 of its creditors, Suntech is now being promoted as a sign of recovery in this industry, and also as a model of how problems in the Chinese industry could be solved.
“Due to a series of central government measures and retailers’ rise, big players such as Suntech, as well as new players such as Jiangsu Shunfeng PV Technology Co., Ltd., are all taking profits from recovery in this industry,” concluded the commentary in the Chinese financial paper Securities Daily. Indeed, things we heard from people involved in reorganization and restructuring give reasons for optimism.
Suntech’s reorganization supervisor Erguan Yang is satisfied with the outcome. Shunfeng PV will pay 3B RMB to the creditors, which is 30% of Suntech’s total original debt. If Suntech decided to reorganize on its own, creditors would get around 15% of their claims. “Although I feel we could have gotten more than 30%, I am still happy with the outcome,” said Yang to the media.
First in the line to get paid are workers, then the government, and within the next three months, other creditors will get paid too. The biggest losers among creditors are the banks, which hold two-thirds of the debt – in particular, China Development Bank. To many it came as a surprise that banks are the main creditors in this story. But these loans were the result of the rise of the Chinese solar industry in 2005, while China Development Bank is known for investments in new energy.
Another thing that surprised everyone was actually the new owner – Shunfeng, especially since they made a deposit of 500M RMB as a part of their bid. Nothing strange, but this 500M is 20% more than what this company earned last year. When you add the 3B they promised for reorganization, things get even stranger.
Reorganization supervisors do not know how Shunfeng came up with this money, but neither do they seem to care, and judging from Shunfeng’s recent activities, there are really no reasons to worry.
Shunfeng, before getting into Suntech, bought 730MW worth of projects from Hareon PV, Changzhou Yixin New Energy Technology Co., and other companies. In September of this year it decided to invest in building a 1.5 GW solar energy plant in Xinjiang province. They plan to produce 3.7GW next year. So, according to Shunfeng’s CEO, Yi Zhang, the purchase of Suntech fits perfectly within this plan.
‘’Suntech as a component supplier should provide us with 1 to 2 GW of supplies. Purchase of Suntech ensures an even more stable supply of Shunfeng’s needs,” explained Zhang.
Although creditors and reorganization supervisors are more or less satisfied with the outcome of reorganization, some of them are reserved about continuing cooperation with this company. The main reason for their concerns is the man standing behind Shunfeng – Zheng Jianming, whose name suddenly popped up when concerns about Shunfeng’s ability for funding such a large restructuring project were raised.
Zheng started to climb up the business ladder by purchasing real estate on the Chinese tropical paradise island of Hainan, and in Shanghai. In 2002, he entered the Hong Kong real estate market where in the next five years he earned around 500M RMB. There are even speculations that he is one of the main shareholders in Gome, one of the largest retail store chains for electric house appliances in China. He entered the energy industry in November 2011, when he bought Shunfeng. Soon after, he went on buying large numbers of shares in LDK Solar, and interestingly enough, some of Suntech’s affiliates.
What makes analysts sceptical of Zheng’s true intentions is the model of cooperation in building new power plants.
As China Business News reports, Zheng lets partner companies pay for the advances on some power plant projects, and makes these companies EPC contractors. If the project is successful they can split the money between themselves. This way, Zheng can expand his power plant network, and at the same time, he does not have to invest a lot of money. It is speculated that he uses the same model with engineering, component and equipment companies in his projects in Xinjiang, Gansu, and other provinces where he started to invest.
Based on this information, analysts speculate that Zheng will use some money to get Suntech to start providing his projects with necessary components. But at the same time, he can use this company as a mortgage or to pay off some debts.
Whichever the case, the situation with Suntech should be clearer by mid-February of next year, when the restructuring of the company has to be completed, according to the approved restructuring plan.
If one can judge from the bustling scenes around Suntech’s facilities these days – potential employees standing in line for job interviews – workers in the factory have no doubt that Suntech will keep on living.
