Suntech Woes Drag On 尚德困境持续
The woes at fast-fading former solar superstar Suntech (NYSE: STP) keep on coming, with the company releasing its latest earnings report that shows its woes are likely to continue until its increasingly inevitable takeover by the state. That takeover, if and when it comes, is likely to be as filled with fireworks as Suntech’s actual decline, with all signs indicating that founder Shi Zhengrong won’t easily yield control of his company to the government-backed funding sources he needs to provide it with desperately needed new capital.
Before we delve too deeply into that part of the story, let’s step back and take a look at the actual preliminary results that show the company’s business continues to decline as it grapples with a massive global supply glut for solar panels. (results announcement)
Other media are focusing on a part of the announcement that says Suntech will have to restate its results for 2010, as the company adds a provision for that year related to a fraud case it recently discovered involving one of its associated affiliates. That case itself is a bit complicated, but the bottom line is that Suntech thought it had received bonds from the associated affiliate and was using those bonds to guarantee a $600 million loan. It later discovered it never received those bonds, and now is having to use its own funds to guarantee the loan.
In my view, this restatement almost looks like the only bit of “good news” in the report, since everyone already knew about this problem and the final $60-$80 million figure in funds that Suntech will need to guarantee the loan isn’t too large and will be recorded in the past.
The much worse news comes in the present, with Suntech reporting that its situation continued to deteriorate in the third quarter with no signs of relief in sight. That’s important, because it could mean the company’s few remaining customers are starting to abandon Suntech and perhaps going to its rivals, amid growing signs that Suntech’s operations could be severely disrupted in an upcoming restructuring that will likely involve an ugly battle for control of the company.
According to its preliminary results announcement, Suntech’s revenue for the third quarter will come in around $387 million, about half of the $743 million in reported a year earlier. It added it expects the weakness to continue into at least the first part of next year, which looks slightly more pessimistic than some rivals that have given signs that their business could start to stabilize following the sectors prolonged downturn.
Equally important, Suntech said it is still working to resolve its debt problems, a reference to the fact that nearly $600 million of its bonds will come due in March next year and it has no way to repay the funds. One of my sources previously told me that Shi would like to find a way to repay the bonds using a solution that doesn’t require a bail-out from Beijing. But that kind of solution looks increasingly difficult, as bond holders are unlikely to make the kinds of concessions that Suntech would need to repay the debt without government help.
Progress in these negotiations will be the key factor to watch in the next 2 months, as it will determine whether Suntech remains an independent company or gets taken over by the government. I suspect a government takeover will be the ultimate result, as both debt holders and especially Beijing are increasingly losing their patience with Shi and would like to see him leave the company. That would pave the way for a fresh new management team to come in and try to turn around this former solar superstar.
Bottom line: Suntech’s latest results indicate the company’s deteriorating situation will continue into next year, making a government takeover likely as it struggles to repay its big debt.
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