Sinking Suntech Wins Symbolic Victory 沉沦中的尚德赢得象征性胜利
Troubled solar panel maker Suntech (NYSE: STP) is trying to calm worried investors with news of a victory in a fraud case that could leave it liable for more than $600 million. The only problem is, the company itself may not survive long enough to enjoy the victory, which has come in the courtroom in this fast-evolving case. Suntech shareholders, who bid down the company’s stock to all-time lows after word of the fraud first came out, were largely indifferent to news of the courtroom victory, bidding the stock up a tiny 2 percent to remain near its all-time low.
Let’s take a look at the news, and then quickly discuss why it probably won’t help the company’s situation too much. Suntech said it has obtained a court order freezing the assets of the man and the company that engineered the alleged fraud, which could leave Suntech responsible for repaying a $600 million loan that it guaranteed. (company announcement) The frozen assets include several solar power plants in Italy that could theoretically be sold, and then funds from the sale could theoretically be used to help repay the $600 million loan.
All of this sounds good in principle and seems like a victory for Suntech, which, along with its peers, is suffering through a prolonged industry downturn that has left everyone struggling under big piles of debt. The big problem in all this is that the victory is happening in the court system, presumably in Italy, and court systems are notoriously slow moving.
Before Suntech can even think about getting cash from a sale of the frozen assets, it will first have to go to court to prove that it was the victim of fraud, a process that would probably take at least a half year. Assuming it could prove it was the victim of fraud, it would then need to receive court approval to seize the frozen assets of the company that defrauded it, again a process that would probably take at least another half year. Then it would have to actually sell the assets, presumably with court supervision, in another process that would probably take at least 6-12 months.
So if you add up all those figures, realistically speaking Suntech wouldn’t be able to get any cash from these frozen assets for 2 years at the quickest, and that’s probably a very optimistic forecast. In the meantime, the bank that made the original $600 million loan will probably quickly declare that loan to be in default and demand that Suntech, as guarantor, repay the amount immediately.
In addition, Suntech also has an unrelated bond worth nearly $600 million that will mature early next year, meaning the company will have to find more than $1 billion to pay off the bond and potentially repay the $600 million loan. With the company’s own cash severely limited and its chances of getting new funding from banks or bond markets virtually nil, Suntech could soon find itself facing a major credit crunch long before it has any hopes of seeing any cash from a sale of these frozen assets in Italy.
Bottom line: Suntech’s court victory in an ongoing fraud case may be largely symbolic, with final resolution of the case unlikely for at least 2 years.
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