Beleaguered solar panel manufacturing giant Suntech Power’s (NYSE:STP) prospects remain in a state of flux following the bankruptcy of its primary operating subsidiary Wuxi Suntech. The firm has been in negotiations with its debtors and strategic investors as a part of its efforts to restructure its debt load that stood at around $2.2 billion as of March 2013 (Suntech hasn’t published its balance sheet since). While the local government authorities of Wuxi have mentioned that the restructuring was progressing smoothly, we believe that the outlook for Suntech’s stock remains largely negative.
Chinese Solar Industry Has Seen Some Improvement
While the Chinese solar sector has had something to cheer about in the recent months with the stabilization of panel prices, the trade deal with the E.U., and relatively strong demand from China and other emerging solar markets, we are not sure as to how much of an upside Suntech can see from this. While Suntech enjoyed strong brand recognition in the E.U. and the U.S., having been the world’s largest panel manufacturer at one point, the bankruptcy filing is likely to have hurt the firm’s image and impact the confidence of customers, especially project developers who count on the company to supply large quantities of panels for solar power plants. Another issue could be warranties – while Suntech has said that it was committed to maintaining the warranty obligations on its products following the bankruptcy, we are not too sure if large customers will be willing to take a risk considering the firm’s dire financial situation.
Liquidity Crunch, Asset Sales Could Be On The Anvil
Suntech is currently operating at between 30% and 40% of its annual panel manufacturing capacity of 2.4 gigawatts (GW), and it seems impossible that the company will be able to service its debt using operating cash flows.  In May, the firm agreed to sell a solar project in China along with significantly discounted solar panels for around $15 million. The average panel price in the deal worked out to around $0.49 per watt which is almost 32% less than the $0.72 per watt market price as of May.  This is in contrast to the broader solar market where manufacturers have been reporting stabilizing and even rising panel prices over the last few months.
There have been reports in the Chinese media that some of Suntech’s rival panel manufacturers including Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) have been bidding for its main manufacturing plants.  While this does seems plausible given that demand for panels has been relatively strong of late and companies would see Suntech’s facilities as a quick means of adding capacity and manpower, it seems quite unlikely that Suntech would be able to generate much liquidity from this since its manufacturing capacity is believed to be older and less efficient given that it has not been investing in upgrades over the last few years.
Forbearance Pact With Note Holders Ends On August 30
The firm has repeatedly extended its forbearance agreement with holders of its 3% convertible notes that were intially due in March and is now required to pay the notes by August 30. The company has mentioned that it was considering options to convert these notes into equity. Suntech currently has a market cap of around $200 million while its total debt load is more than ten times as much and the total face value of its 3% convertible notes is around $540 million. If the company were to consider converting debt into equity, it would be tremendously dilutive to current stockholders.Notes: