SunTech’s Sunset Illuminates State Ties

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Doug Young 


Sunset for Suntech. Photo by Tom Konrad

As the sun rapidly sets on former solar pioneer Suntech (OTC: STPFQ), I thought I’d take a look at the latest reports that show just how closely the company relied on state support. At the same time, another major development has seen Suntech’s shares finally de-list from New York, where they have traded since its 2005 IPO. The de-listing is something that should have happened long ago, even though investors continued to bet that Beijing would rescue Suntech ever since the company was forced into bankruptcy back in March.

I’m suddenly feeling a bit nostalgic while writing this, as I suspect it will be one of the last chances I have to write about Suntech before the company officially ceases to exist. But I also suspect we’ll probably see at least 1 or 2 more flare-ups before the curtain drops, providing an appropriate final burst for this former solar pioneer that later became a poster child for creative accounting that is relatively common among US-listed Chinese companies.

Let’s start with a look at a new report that shows just how closely Suntech was tied to state support. Such strong support was one of the main factors for the sector’s build-up over the last decade, which resulted in massive oversupply that sparked a downturn that began more than 2 years ago and is only finally starting to subside now. That downturn claimed numerous victims in the US and Europe, and Suntech is the biggest victim in China.

According to the latest report, Suntech’s 2 largest creditors were both big state-run lenders, which often make their decisions based on orders from the central and local governments and provide loans at rates well below market levels. The largest of Suntech’s creditors was China Development Bank, one of Beijing’s main policy lenders, which held about 2.4 billion yuan ($393 million) in Suntech debt, or about a quarter of the company’s total debt of 9.5 billion yuan. (English article) The second biggest creditor was the Bank of China’s (HKEx: 3988; Shanghai: 601988) branch in the city of Wuxi, Suntech’s hometown, with nearly 2 billion
yuan in debt.

Some quick math will show that these 2 banks alone account for nearly half of Suntech’s debt, though it’s unclear to me if the 9.5 billion yuan figure also includes the company’s international bonds. But regardless, the fact that 2 big state-owned banks lent $720 million to Suntech looks like strong evidence to support foreign competitors’ claims that Beijing provides unfair support to its solar panel makers. Those claims led to anti-dumping investigations by the US and EU, both of which found that China did indeed provide unfair support to its solar panel makers.

From there, let’s look quickly at the other major development, which saw Suntech’s shares officially moved to the over-the-counter market earlier this week from their former listing on the New York Stock Exchange. The NYSE officially cited uncertainty over Suntech’s ability to file its annual report on time for the de-listing. (English article) But I suspect that stock exchange officials also felt guilty for not pressing harder to de-list Suntech shares earlier, as most companies are usually instantly de-listed when they enter bankruptcy reorganization.

Investors continued to value Suntech at more than $100 million throughout the bankruptcy process, with its shares trading above the minimum required $1 level for most of that time. They finally began to sink last week after it became clear the company was being liquidated, though they suddenly rallied 40 percent in over-the-counter trade in the latest session. Personally speaking, I’ll be happy when the shares finally stop trading completely, formally ending Suntech’s life as a listed company.

Bottom line: The latest reports on Suntech’s debt highlight its strong government support, even as its New York-listed shares loom closer to becoming worthless.

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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