Suntech: Rats Fleeing A Sinking Ship? 尚德：船沉鼠先窜？
After managing to stay out of the news for a couple of weeks, scandal plagued solar panel maker Suntech (NYSE: STP) has bounced back into the headlines with the announcement of the departure of its chief commercial officer, who is leaving for “personal reasons.” (company announcement) I don’t want to sound too crass on this otherwise lovely Monday morning in Shanghai, but this departure looks a bit like the proverbial “rats jumping from a sinking ship” that we often see just before a company implodes.
The “sinking ship” metaphor has been all too clear in Suntech’s stock price since the series of scandals that started more than a month ago when the former solar energy pioneer began to disclose details of a questionable relationship with one of its biggest customers. Its shares have lost more than half of their value since the scandal first broke in late July, and shed another 7 percent on Friday to a fresh all-time low after it announced the departure of CCO Andrew Beebe.
Perhaps the undisclosed personal reasons for Beebe’s departure was that he didn’t want to work for a company that could very well be out of business by the end of this year. Then again, Beebe, as the man in charge of Suntech’s sales and marketing, was most likely near the center of the current crisis. That crisis was sparked by revelations that Suntech was the controlling stakeholder in a company called GSF, which also happened to be one of the company’s biggest customers that may have been buying Suntech’s solar panels at inflated prices.
After the original news came out, Suntech announced that its founder Shi Zhengrong would resign from his post as the company’s CEO but would remain as its chairman. (previous post) I’ve previously written that I expect that the US securities regulator will open an investigation into Suntech, which will further hammer the company’s shares as it rapidly heads for de-listing. In fact, I wouldn’t be surprised if that investigation has already begun and Suntech knows about it but is just waiting for the right moment to disclose the latest bad news to its investors.
I’ve also previously written that Suntech’s only hopes for survival now lie in the hands of Beijing, which has the power to save the company through a major new cash infusion that it could never receive from banks or financial markets at this point. If Beijing is smart, it will resist the temptation to save this former solar energy pioneer and instead let it fail in a very high-profile way. That would send a message to other major private Chinese companies, both solar and from other industries, that these kinds of accounting shenanigans are not acceptable and that the government won’t automatically rescue companies that get into trouble after deceiving investors.
There are probably other Chinese solar panel makers that have practiced equally deceptive accounting and also deserve to fail, although Suntech has the unlucky distinction of being the first to have its misdeeds come to light. I suspect Bebee’s departure as CCO is just the first in what will quickly become a steady stream of resignations, as Suntech’s ability to continue as a viable business quickly fades.
Bottom line: The departure of Suntech’s chief commercial officer is the first in what’s likely to become a steady stream of high-level departures as the company sinks toward insolvency.
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