Effects of Wuxi Suntech’s Bankruptcy Ripple Throughout the Industry

The reorganization seems to be going smoothly as at least 400 of Wuxi Suntech’s creditors have registered with the committee

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The recent bankruptcy filing by Wuxi Suntech, a subsidiary of Suntech Power Holdings Co., Ltd. (ADR)(NYSE:STP), has already shocked many in the business, but the trauma does not appear to stop yet. Like a train wreck, Wuxi Suntech has derailed, and its tremendous power has also dragged others off the tracks.

The list of collateral damages includes more than 70 companies hindered by Suntech events on their path toward IPO. Banks that provided loans suffered greatly as the surge of uncollectable bad debt cut into their books. The collapse of Wuxi Suntech has further crippled the credit market and obtaining funding from banks for solar PV businesses has become tougher than ever.

Many of Wuxi Suntech’s suppliers are also among the list of victims who have taken direct blows from the collapse.  Most of them are well-known publically listed companies based in China, who provided silicon, wafers, cells and other materials to Suntech as part of the supply chain.

They all have a huge volume of accounts receivable from Wuxi Suntech; based on the 2012 annual report of Beijing Jingyuntong Technology Co Ltd (SHA:601908), they have an estimated RMB 30.88M of accounts receivable on their books, which will likely turn into bad debt due to Wuxi Suntech’s bankruptcy.  Beijing Jingyuntong, a Wuxi subsidiary, provided silicon wafer OEM service to Wuxi Suntech, and it’s also one of their major accounts; the overall impact will not just be on the possible bad debt, but the decrease of future sales might be even more devastating to the company’s value. 

Jingyuntong is among those who suffered the least.  Another casualty of the incident is Tianjin Zhonghuan Semiconductor Co. Ltd. (SHE:002129); from the stock exchange announcement related to the company, there are several accounts receivable from Wuxi Suntech and its subsidiaries Luoyang Suntech and Shanghai Suntech.  The total amount is estimated at RMB 176M on both accounts receivable and notes receivable.  As the company’s 2012 annual report only showed RMB 6.2M of net profit, if the account receivables turn into bad debt, it will significantly weaken the company’s 2013 performance and will leave an ugly dent on its stock price.

Xi'an LONGi Silicon Materials Corporation (SHA: 601012) also has about RMB 120M of accounts receivable to date. LONGi has been actively seeking ways to collect the debt from Wuxi Suntech, and made a public announcement about their endeavor while warning about the possibility of this uncollectable bad debt.       

One of the suppliers of Wuxi Suntech has taken a different path to retain their rights to get paid.  A few months before Suntech formally filed their bankruptcy, Changzhou Almaden Stock Co Ltd (SHE:002623) brought the matter to court in China.   They won the case and the court ruling made on Feb. 22, 2013, stated that Wuxi Suntech is required to pay back Changzhou Almaden an amount of RMB 59M of accounts receivable, plus related interest, within 10 days after the court’s ruling.  Almaden was quite joyful about the court’s decision, but after Wuxi Suntech formally filed their bankruptcy and began their reorganization, Almaden’s hope to recover the money seems to be a longer journey than anticipated.

While Wuxi Suntech is undergoing its reorganization process, the founder and former CEO Shi Zhengrong has temporary been restricted from leaving China in order to face any problems that may arise.  The current CEO David King has also been restricted from leaving, to wait for further development of the reorganization.

The creditors of Wuxi Suntech will host their first meeting to discuss matters on their debt collection.   The Wuxi’s People’s Court has also appointed a 10-member committee to oversee the process of bankruptcy and reorganization.  Within two weeks, the reorganization committee has made significant progress and obtained all the company’s seals and financial records.  They’ve also hired nearly 100 professionals, consisting of legal counsel, accountants, and financial advisers.

The reorganization seems to be going smoothly as at least 400 of Wuxi Suntech’s creditors have registered with the committee, and they have also gotten a clear picture of the company’s current balance sheet. 

Wuxi Suntech owns four production plants in Wuxi, as part of the reorganization process, three of them worth 1.2GW of capacity will be sold. Reemerged enterprise will only keep one of the plants with 600MW cell and module capacity. Ironically this most advanced, fully automated plant, is owned by a joint venture, 40% owned by Wuxi Suntech and rest is evenly split between Wuxi Industrial Development Group and Wuxi New District E&D Group, companies already operated by the state. The fate of other production subsidies, Shanghai and Luoyang Suntech, together holding 600MW of module capacity, remains unclear at this time. There are no more details on two wafer producing subsidiaries, Zhenjiang Rietech and Zhenjiang Rende New Energy Science Technology Co., thought by Solarzoom as ones to be allowed to go bankrupt first, due to their cost-expensive characteristics. The layoff is an ongoing process throughout the company; only the accounting and finance department are not as deeply downsized as other departments. 

A successful reorganization may pave the way toward a new company. Most of the people and companies involved haven’t given up hope of collecting the debt, or seeing the fraction of a giant rise once again.