Suntech: More Trouble in Italy 尚德在意大利惹上新麻烦
The sounds of a death knell for fast-falling solar star Suntech (NYSE: STP) keep growing louder, this time with word that Italian officials have charged a company affiliate for illegally abusing the country’s solar subsidies meant to promote clean energy development. After 2 weeks of nearly non-stop news about its questionable relationship with a firm that Suntech set up to buy its solar panels at inflated prices, Suntech had largely faded from the headlines as the stream of new revelations started to subside. But now we’re getting word that an Italian court has filed criminal charges against GSF, the fund that Suntech set up to build solar farms to take advantage of generous Italian subsidies. (English article)
According to a report from Reuters, GSF failed to get the necessary approvals for some of the solar plants it constructed, which could result in an eventual closure and dismantling of solar farms that cost the company around $100 million to build.
GSF is 80 percent owned by Suntech, though Suntech treated it as a separate company for accounting purposes when it sold GSF solar panels at reportedly inflated prices to boost its revenue. Such questionable accounting practices first started coming to light after Suntech revealed early this month that it may have been defrauded by GSF over a loan that Suntech had guaranteed. (previous post)
Following the flood of revelations, several law firms have announced class action lawsuits against Suntech, whose shares have plummeted to below the $1 level to close at 98 cents in Wednesday trading in New York. That’s a huge tumble from their highs of more than $80 just 4 years ago when solar companies were at their zenith.
In addition to this new liability in Italy and the class-action lawsuits, Suntech also faces the headache of finding financing to repay nearly $600 million in bonds that will come due early next year. I also previously predicted that the US securities regulator is also likely to open an investigation into the company’s accounting that could result in an eventual de-listing. (previous post)
In many ways, Suntech’s problems aren’t really exclusive to the company itself and instead represent the confluence of 2 unfortunate trends that have plagued solar panel makers and, more broadly speaking, US-listed Chinese firms since early 2011.
At the industry level, Suntech and its peers have suffered from a prolonged downturn due to massive construction of new capacity in China, where manufacturers receive generous government support and now supply more than half of the world’s solar panels. At the broader level, US-listed Chinese firms have seen their share prices tumble since spring of last year, following the uncovering of a series of scandals that highlighted the lax accounting practices at many companies.
Suntech is both the victim of the solar downturn, and also now appears to have practiced the kind of creative accounting that has tarnished the image of Chinese companies in general. At the end of the day, these latest charges from Italy look relatively minor compared to some of the other financial hurdles Suntech now faces. But this growing list of liabilities is showing no signs of slowing, and could easily lead to the bankruptcy or dismantling of Suntech within the next 12 months unless Beijing throws the company a very big lifeline.
Bottom line: New criminal charges against a Suntech affiliate are the latest blow against the company, with bankruptcy likely in the next 12 months unless Beijing intervenes.
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