Suntech Reorganizes While Sector Stabilizes

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Doug Young

Several solar panel companies are in the headlines once again, led by an news that bankrupt former superstar Suntech (NYSE: STP) is nearing a reorganization that will cost its stockholders most of their money. While that may sound bad, I personally don’t have much sympathy for anyone who continued to hold Suntech stock after the company started experiencing major problems about a year ago. Meantime, the news is a bit more positive for rivals Yingli (NYSE: YGE) and Renesola (NYSE: SOL), which both reported narrowing losses as outlook for the sector continues to improve with stabilizing and even rising prices for solar panels.

Let’s start off with Suntech, as that’s the most salient of the latest news, involving a former solar pioneer whose rapid fall ended with its bankruptcy back in March. Suntech’s latest developments could be quite good, as it will most likely lead to the emergence of a smaller, more focused company. Its new leadership will also most likely consist of a more professional management team that doesn’t include its founder Shi Zhengrong, a former engineer who in many ways was responsible for some of the financial shenanigans that got the company into trouble.

Suntech’s latest update on its ongoing reorganization doesn’t contain too many specifics, except to say that it is nearing a reorganization agreement with a group of its major creditors. That deal will see the creditor group, which includes private equity firms Clearwater Capital and Spinnaker Capital, get equity in the newly reorganized company in exchange for their debt. (company announcement) The deal would also see “significant dilution” for Suntech’s existing shareholders, which is quite expected.

The announcement makes no mention of separate recent media reports that say Suntech was auctioning off major parts of its core operations to raise cash, with Yingli and Trina (NYSE: TSL) both cited as interested bidders. (previous post) My guess is that we’ll see a major asset sale to another solar company, and then the remaining Suntech assets will probably be folded into a new, significantly smaller company with a market value in the $200-$400 million range. I would expect Suntech’s current shareholders to get a maximum of 10 percent of the reorganized company, meaning their shares could sink another 80 percent or more from their current levels by the time a deal is finalized.

From Suntech, let’s move quickly to Yingli and Renesola, which have both posted relatively straightforward results that show stabilizing revenues and narrowing losses. Investors were most encouraged by the Renesola results, bidding up the company’s shares by more than 8 percent after the figures came out. Yingli shares also rose, but by a more modest 2.4 percent after it announced its results.

Renesola said it expects both revenue and margins to stay stable in the next few months. (company announcement) It forecast third-quarter revenue in the $360-$380 million range, roughly in line with its second quarter revenue of $377 million. It also forecast third-quarter gross margins in the 7-9 percent range, again in line with its second quarter figure of 7.3 percent. Investors must also have been encouraged by a second-quarter loss that narrowed to $21 million, 40 percent smaller than the $35 million loss a year earlier.

Yingli didn’t give any third-quarter outlook, but its second-quarter results also showed similar trends. Its loss for the quarter narrowed sharply to $52 million from $92 million a year earlier, while revenue grew about 10 percent to $550 million. Neither company looks set to return to the profit column by the end of this year, even though rival Canadian Solar (Nasdaq: CSIQ) has said it’s on track to return to profitability for all of 2013. (previous post) Look for more steady improvement from everyone in the second half of 2013, even as company finances remain tenuous due to the massive losses incurred by everyone over the last 2 years.

Bottom line: Suntech will soon announce a reorganization that will largely wipe out existing shareholders, while other solar players should see stability for the rest of this year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.


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