Suntech Reportedly Declares Bankruptcy Raising Questions On China’s Next Move

According to reports from China’s Xinhua news agency, Suntech Power (NYSE:STP) declared bankruptcy today. ^[1] The firm failed to make a $541 million principal payment on convertible bonds that matured last Friday, and was served a default notice by the trustee of the bond issue. Details of the bankruptcy and the chapter under which it was filed are not immediately known, but we believe it will involve a reorganization. (See Also: What Are The Implications Of Suntech’s Failure To Make Its Bond Payment?)

Recent developments indicate that the government of Wuxi (the region where Suntech is located) would play a larger role in the firm. Last week, The New York Times reported  that the firm could be taken over, either fully or partially, by the government of Wuxi, citing an unnamed official.

Suntech is known to have been in discussions with the government for sometime now and recently appointed Weiping Zhou, a former chairman of a state-owned finance firm Wuxi Guolian Futures, as president and executive director. ^[2]

We believe that any participation from the Wuxi government will be targeted at protecting jobs and the local economy, and equity holders are unlikely to see much benefit. If an equity injection were to occur to help Suntech out, common shareholders would see their stake in the company practically vanish since the firm’s current market cap is around $100 million while the face value of the bond issue is around five times as much at $541 million.

We will be watching the situation and our price estimate for Suntech could change materially based on the turn of events.

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1. Reuters [↩]
2. Greentech Media [↩]