Suntech: A Company in Free-Fall 尚德电力陷入死亡漩涡
Solar pioneer Suntech (NYSE: STP) was all smiles earlier this week when it announced an important sales milestone in North America, even as its outlook continued to dim amid a major fraud case that has spawned a new class action lawsuit against the company. (lawsuit announcement) Before I get to the latest details in this case, I want to step back quickly and look at the bigger picture, which is this: Suntech looks like a company on the cusp of falling off a cliff, potentially setting the stage for an acquisition by one of its rivals or even a potential bankruptcy.
News of the new lawsuit hardly helped Suntech’s battered stock, which slipped 2.8 percent in Thursday trade to re-approach an all-time low reached the previous week after it first disclosed the fraud case. At its current price of $1.04, the company is in very real danger of slipping below the benchmark $1 mark for a prolonged period, which would automatically trigger a de-listing warning under New York Stock Exchange rules where its shares trade. (previous post)
The $1 level would have been unthinkable back in 2008, when Suntech’s shares traded in the $80 range when it was seen as an industry leader in the potential-filled new energy sector, and the company’s shares were still trading near $10 as recently as last year.
Industry watchers will know that Suntech is hardly alone in its recent woes, which have seen most solar shares tumble sharply over the last year amid a massive supply glut. Chinese manufacturers, which produce more than half the world’s solar cells, have fared worse than their overseas rivals due to accusations of unfair state support from Beijing that have led the US and Europe to consider punitive tariffs.
But while the broader outlook remains dire, Suntech’s own situation took an even darker turn last week when it disclosed that it may have been the victim of fraud from an affiliate that pledged non-existent bonds as collateral for a $600 million loan that Suntech had guaranteed. (previous post) That news sparked a sell-off that saw Suntech’s shares tumble below the $1 mark for 4 consecutive trading days last week, as investor worried not only about potential liability from the fraud, but also more broadly that weakness in Suntech’s internal controls could point to more accounting problems in the future.
As if all those problems weren’t enough, now we have this new class action lawsuit that will undoubtedly result in millions of dollars in additional liability for a company that was already struggling under a heavy debt burden. At its current share price, Suntech’s market valuation has shriveled to just $188 million — a pittance for a company that was once worth billions of dollars.
All of this leads to my next prediction, namely my belief that Suntech’s days as an independent company could be severely limited due to its increasingly tenuous finances. In addition, the company’s low valuation and valuable assets must be attracting interest from potential buyers. Suntech could go several routes if it ceases to exist as an independent company. In my view, the most likely of those would see it agree to be acquired, but only after a reorganization to eliminate some of its biggest liabilities. I wouldn’t be surprised to see such a deal by the end of this year, of course assuming that Suntech can stay in business that long.
Bottom line: Suntech’s growing woes and cheap valuation mean its days as an independent company could be numbered, with an acquisition or bankruptcy possible as soon as year end.
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