Will $150M investment Be Enough to Save Suntech?


Suntech receives an investment letter of intent from Wuxi Guolian Development Group to make an equity investment into the company of $150. 

Suntech (NYSE: STP) has received an investment letter of intent from Wuxi Guolian Development Group, a state-backed enterprise, to make an equity investment into the company of $150 million to support rehabilitation and restructuring of the financial and operational affairs of the firm.

According to Suntech, the support from Guolian may also lead to combining other solar and related businesses the group owns with Suntech, possibly as joint ventures or similar arrangements.

Suntech’s main unit was pulled into bankruptcy proceedings after the Chinese panel manufacturer failed to repay $541 million in bonds that matured in March.

In an article on Businessweek, Angelo Zino, analyst with S&P Capital IQ, commented: “It was the world’s biggest solar manufacturer by 2011 shipments, and the potential failure of a company with more than 20,000 employees at its peak in 2010 is prompting state agencies to come to its rescue.”

“What we anticipated all along was that the Chinese government will look for ways to support and make sure Chinese tier-one solar manufacturers will continue to survive,” Zino said in an interview. That includes Suntech and other manufacturers struggling with debt such as LDK Solar Co. “The main reason for that has to do with jobs,” Angelo added.

However, the $150 million investment may not be enough. At the end of the first quarter, the last time Suntech reported earnings, the firm has $2.26 billion in debt.

“For a company with at least $2 billion in debt, $150 million is certainly not a game changer,” said Pavel Molchanov, an analyst with Raymond James & Associates, in an interview with Businessweek. “We don’t know what Suntech’s actual financials are right now. They haven’t reported in quite some time,” said Molchanov.

Guolian is the investment arm of the city government of Wuxi, Jiangsu Province, China, where Suntech is headquartered. The company has primary investments in finance and industry. The industry investments include downstream solar companies, power generation projects, textile industries, waste disposal facilities, and related environmental protection and energy projects. As of the end of 2012, the total assets and net assets of Guolian were approximately $6.7 billion and $2.6 billion, respectively.

Guolian had previously participated in the competitive bidding process for Wuxi Suntech Power, Suntech’s main subsidiary in China. In that bidding process, however, Jiangsu Shunfeng Photovoltaic Technology had been selected as the company’s strategic investor.

Zhou Weiping, Suntech’s CEO, commented: “Even though the investment letter of intent is indicative only and is not a firm commitment, this is an important step in the restructuring of the company with key stakeholders. While there will be substantial dilution for existing shareholders, the successful implementation of these efforts will preserve the company’s international platform, rebuild the company’s operating assets, and rehabilitate the company’s global brand.”