Suntech’s Problems Deepen; Could Turn To Chinese Government To Refinance

STP: Suntech Power Suntech Power  each representing One Ordinary Share) logo
Suntech Power Suntech Power each representing One Ordinary Share)

Suntech Power (NYSE:STP) has seen its shares crash in the past few days after news emerged that the company could have been defrauded by an affiliate. Suntech guaranteed a Euro 554 million loan to an affiliate backed by Global Solar Fund (GSF). It said that it had not verified the existence of the Euro 560 million in German bonds that were pledged as collateral for the loan. [1] The irregularities were unearthed when it was looking to sell its 80% stake in GSF, and Suntech said that it is possible that the bonds may never have existed. Suntech’s shares fell to $1.13, their lowest level since the company began trading in 2005. The news could make it difficult for Suntech to refinance its debt later this year.

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With the latest revelation, analysts are calling into question Suntech’s ability to raise capital in the future. The company is already under stress as panel prices continue to fall because of oversupply. The situation is particularly precarious for Suntech, which will see about $1.6 billion in debt mature in 2012. [2] The company has already warned that its liquidity position is a concern and that it needs to raise additional funding to sustain its business. [1] Industry observers say that with the latest revelation, American investors are set to lose confidence in the company and expect the Chinese government to come to the aid of the panel manufacturer.

Despite the worsening conditions in the solar market, Suntech and other Chinese manufacturers enjoy low interest rate credit facilities extended by the Chinese national banks. Chinese solar manufacturers are already under fire for unfairly benefiting from subsidized credit. The U.S. has already imposed tariffs of around 32% on Chinese panel sales in the country and complaints against Chinese solar equipment have also been filed in the E.U. A possible government bailout of Suntech could have repercussions on its sales in these markets.

We are looking to revise our $2.70 price estimate for Suntech Power, which is more than double its current market price.

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  1. Suntech Funding Needs Won’t Be Met by Wall Street Analysts Say, Bloomberg [] []
  2. Chinese Banks and Solar Subsidies, WSJ []