Suntech, Trina in Solar Blood-Letting 光伏产业已经触底？
Just when you thought the struggling solar sector’s prolonged downturn had reached bottom, industry leaders Suntech (NYSE: STP) and Trina (NYSE: TSL) have put out announcements that seem to indicate they used creative accounting to hide the magnitude of their suffering. While these latest 2 announcements have clearly spooked investors, I’m going to take a somewhat contrarian view and say these confessions may actually be a positive sign for an industry suffering through a downturn that has lasted nearly a year and a half now, sending all major players deeply into the red. My reason is simple, namely that big players like Suntech and Trina are confessing to these problems because they think the worst of the downturn is behind them, and they want to clean up their balance sheets to position themselves for a fresh start when a recovery begins.
Let’s look at the latest disclosures starting with Suntech, which announced that it may have been defrauded by a company that was helping it to guarantee a loan made to a third party for more than $600 million. (company announcement) The case itself looks quite complex, but the bottom line appears to be that Suntech could now be responsible for paying back some or all of the loan if the actual borrower ultimately defaults. Suntech could face huge liability from the loan guarantee itself, but equally worrisome is the fact this case spotlights big deficiencies in Suntech’s own internal financial controls.
Meantime, Trina has released “updated” guidance that shows its second quarter sales will come in 20 percent below its previous forecasts. What’s more, the company has also announced a write-off of nearly $50 million for payments that it thinks it won’t be able to collect. (company announcement)
Industry watchers will recall that Trina made headlines last July when it announced one of its independent directors who was also the head of its audit committee resigned for personal reasons. I remarked at the time that such a development was a bad sign, as it probably reflected internal disagreement about some of the company’s aggressive accounting practices. (previous post) More recently, Trina dumped the controversial China arm of accounting firm Deloitte (previous post) for a new external auditor, again hinting at financial turmoil within the company.
Suntech’s shares tumbled 15 percent to an all-time low after its latest disclosure, while Trina’s fell nearly 11 percent. From my perspective, the biggest danger for both of these companies doesn’t lie in their accounting books right now, but rather in the very strong possibility that the US securities regulator will open investigations into one or both to look for possible fraud.
But from a broader perspective, I really do think these 2 disclosures represent an attempt by the industry to put its troubles behind it as the sector gets set for recovery. Of course, the question of which companies will still be in business a year from now to enjoy that recovery is quite another matter.
Bottom line: The latest disclosures by Suntech and Trina point to accounting problems at both firms, but also indicate each feels the worst of the sector’s downturn is in the past.
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