Suntech Power (NYSE:STP), the world’s largest solar panel manufacturer, has been granted an emergency funding package of 200 million yuan (US$31.7 million) by the government of the city of Wuxi, China. The move by the regional government follows a warning from the New York Stock Exchange that the company could potentially be delisted since its shares have been trading at less than $1 for over 30 consecutive days. 
This isn’t the first time that a Chinese solar firm has been bailed out by a regional government. In July, news broke that LDK Solar (NYSE:LDK), China’s second largest solar equipment manufacturer, would have a portion of its debts repaid by the government of its home town of Xinyu.
Suntech Power, like many other Chinese solar firms, have struggled in the last two quarters straddled with massive debt loads and declining gross margins. The financial support is expected to be arranged through a consortium of banks, including The Bank of China, and will primarily go towards funding the company’s short-term operating expenses. The regional government of Wuxi also mentioned that it would study further measures to help Suntech, an indication that more funding may be on the way.
We have a price estimate of $1.17 for Suntech Power, which is about 35% ahead of its current market price.
Government Support To Continue
Although the size of the initial funding package is relatively small, we believe the message it sends is very clear: the Chinese government will pull out all the stops to ensure survival of its solar industry.
It is well known that Chinese solar industry has been plagued by weak demand, excessive capacity and accusations of dumping in key export markets of Europe and North America. As Chinese solar firms struggle with supply-demand rationalization, the government is taking proactive steps to alleviate the pain by developing a domestic market for solar products.
As a fast growing industrial economy, China has an almost insatiable need for energy, and the government is hoping that solar can play a bigger role in the energy generation mix. Presently, installed solar capacity stands at around 3.6 GW, contributing to less than 1% of the energy generation mix.
The National Energy Administration of China has set a target of achieving an installed capacity of 50 GW by 2020. In this regard, the government provides subsidies of about 5.5 yuan per watt of solar power installed for captive solar generation projects and up to 1 yuan per kilowatt-hour for on-grid solar power. Notes:
- Suntech Gets Local Government Support After New York Warning, Bloomberg [↩]
- Suntech Gets $32m Emergency Loan From Local Government, China Daily [↩]