The Ghost of Solyndra Haunts Chinese Solar Stocks

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Doug Young

The solar sector’s slow recovery is receiving some new setbacks in the form of lawsuits by 2 bankrupt US companies against Yingli (NYSE: YGE), Trina (NYSE: TSL) and Suntech (NYSE: STP), the last of which is also in bankruptcy reorganization. Adding to the mess, Suntech has just disclosed that more of its European assets have been seized by the Italian courts, throwing yet another new complication into its ongoing reorganization. This growing tide of litigation is somewhat expected, as investors try to recover whatever money they can following the sector’s spectacular crash over the last two years. But such actions will only slow the sector’s broader recovery, and in some cases could remain as troublesome liabilities for companies for years to come.

Let’s start off this solar litigation roundup with a look at a series of lawsuits filed against Trina, Suntech and Yingli by 2 US companies, Solyndra and Energy Conversion Devices. (English article) Both Solyndra and Energy Conversion went bust during the sector’s 2-year-old downturn, and these new lawsuits are attempts by their creditors to recover whatever money they can. Both Trina and Yingli issued statements saying they believe the claims are groundless, and that the suits represent attempts by Solyndra and Energy Conversion Devices to to blame others for their own failures. (Yingli statement; Trina statement)

It’s impossible for me to give an informed view about the merit of the lawsuits since I’m unfamiliar with the technology involved. But I can say with certainty that these lawsuits will add unwanted legal costs and pose the threat of penalties over the next few years for Yingli, Trina and Suntech. That’s the last thing these companies need as they try to return to profitability after 2 years of big losses.

This isn’t the first time that Solyndra has caused headaches for the Chinese manufacturers. Industry watchers will recall that the US company’s original bankruptcy was the first event in a chain that ultimately ended with Washington slapping anti-dumping tariffs on Chinese-made solar panels earlier this year. So perhaps it’s appropriate that the ghost of Solyndra is coming back just one more time to cause headaches for these firms.

From these new lawsuits, let’s look quickly at the latest news from Suntech, which says courts in Italy have seized another 10 solar power plants owned by Global Solar Fund (GSF), a solar power plant builder controller by Suntech. Suntech reported last month that the Italian courts had seized 37 of GSF’s solar plants (previous post), and now the number has grown to 47. (company announcement) These new seizures mean GSF has now lost control of 27 percent of its assets, which prosecutors suspect of violating various environmental and authorization rules.

GSF was once one of the biggest buyers of Suntech’s panels, and has an enterprise value of about $800 million. Suntech creditors were hoping to sell GSF’s assets as part of Suntech’s reorganization, in a bid to get back some of their money. But the seizure of so many GSF assets, combined with the potential threat of additional seizures, means that GSF may be a difficult asset to liquidate anytime soon.

I’d previously guessed that a sale of all of GSF’s assets could have generated around $200 million in cash, far less than the company’s enterprise value, since many of its plants were built at the height of the solar boom when panels were still quite expensive. But these latest seizures mean that Suntech’s creditors won’t be able to recover any money from the sale of GSF assets anytime soon. That means negotiations for Suntech’s reorganization may have to be re-opened, further delaying its emergence from bankruptcy.

Bottom line: New US lawsuits against Chinese solar panel makers and the Italian court’s seizure of more Suntech assets reflect growing solar litigation likely to delay the sector’s recovery.

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.

1 COMMENT

  1. Solyndra’s bankruptcy had little to nothing to do with the trade tariffs. The tariffs were imposed because American business finally got their heads out of their asses and got their puppet congressmen to pass legislation to punish China for dumping their inferior product on the US market, all in order to undercut and undermine American and Canadian sales of solar cells and panels. Of course, China does this with every market they can get their greasy little hands on, so this came as a surprise to only a few. But solar panels became a hot button issue during an election year and that’s why that issue was addressed.
    Solyndra crapped out due to circumstances generated by the almighty Invisible Hand of the Free Market. They had a viable product that, at the time, was cheaper than solar panel production. But the burst of activity in Lithium mining dropped Lithium prices like a hot rock, and suddenly solar panels were cheaper that Solyndra’s tubes. Thus, they went under.
    It would simplistic to say that the Lithium explosion was all China’s doing (although they did produce the most minerals), but it would be a hard leap to suggest they did it just to undermine one company. Again, this was part of the Chinese government’s long-term plan to undercut the world market in Lithium production and, thus, solar panel production and sales.
    ‘Nuff said…

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