Suntech Power (NYSE:STP) reached yet another deal with a majority of the holders of its 3% convertible notes to defer the payment date to August 30. The note holders will now nominate two additional directors onto the company’s board and will also help to identify potential investors to bring in additional capital.  Suntech’s primary manufacturing subsidiary, Wuxi Suntech, was pushed into bankruptcy by creditors in China in March after it defaulted on convertible note payments to the tune of $541 million. Suntech first signed a forbearance pact with its note holders to delay payments in March, and this marks the second time that date is being extended.
We believe that it is becoming increasingly evident that the company’s chances of settling the debt issue are very slim. The repeated extension of the forbearance agreement also underscores the fact the creditors don’t seem to have much of a choice either, considering Suntech’s dismal balance sheet and a lack of salable assets. Now, the company says that it is also considering options for debt holders to convert their debt into equity in the company. We believe that this would be enormously dilutive, marginalizing existing shareholders claims on the company since the face value on the notes is nearly three times the company’s current market cap ($180 million).
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In the meanwhile, Suntech has been showing signs of desperation for liquidity. Most of the company’s capital is tied up in manufacturing equipment, and it is seems highly unlikely that it will be able to monetize it since the equipment is older and possibly less efficient than that of its competitors. This has forced the company to resort to fire-sales of its panels to free up cash.
In May, Suntech agreed to sell a solar project in China along with significantly discounted solar panels to Shunfeng Photovoltaic International for around $15 million. The average panel price in the deal worked out to around $0.49 per watt – almost 32% less than the $0.72 per watt market price as of May.  We have a price estimate of around $0.21 for Suntech, which is about 80% below the current market price, reflecting the firm’s massive debt load, dismal balance sheet and weak prospects.Notes: