Suntech can’t stop the Bleeding as top managers exit despite restructuring and UBS
The travails of China’s top solar panel manufacturer do not seem to stop with its credibility being hit by a new problem each day. Suntech has made massive management blunders in the past for which it is paying heavily today. The company which is reeling under billions of dollars of debt has restructured its management and reduced the size of its operations. However that does not seem to have helped as top managers continue to flee the sinking Suntech ship. The hiring of top investment bank UBS to restructure its debt has not helped the stock or the company’s operations. The problems at Suntech have become so massive that only an outright bankruptcy or sale can solve it. This conclusion seems to have been reached by the interim CFO Anlin Ting-Mason as well. Suntech received a delisting notice from NASDAQ after it became a penny solar stock . Note other Chinese solar companies like Hanwha, JA Solar and LDK have also joined that infamous club. China Sunenergy is set to join this club again despite a reverse spit done a few months ago.
List of Suntech Mistakes:
a) Signing a number of long term polysilicon and wafer supply agreements paying huge amounts as prepayment when polysilicon prices were at a historical high. Many of these prepayments and investments had to be written down as the smaller suppliers went bankrupt and the polysilicon prices crashed resulting in renegotiation which resulted in additional payments.
b) In R&D, despite promise of a game changing technology Pluto, the company could never really come up with the goods. Suntech’s solar cell efficiency is no better than its competitors like Trina, Yingli and others.
c) Making costly investments into thin film technology which had to be written off as well.
d) Bad capital structure with too much debt has resulted in the company being potentially insolvent now with the more than $500 million being expected to be the amount of fraud.
e) The company started to vertically integrate into wafers and ingots exactly at the wrong time when wafer prices started to crash. This wasted additional hundreds of millions of dollars.
Suntech’s management is the worst amongst the Chinese solar companies given the number of mistakes it has made till date despite the initial mover advantage, plus the strong support from the Chinese Government it enjoys. The company has so much debt and its business model, is in such a dire shape that only a Government bailout can keep the company alive. Like LDK Solar, Suntech is now dependent on the benevolence of the Chinese Government and its banks. The company’s convertible bond prices have crashed to 40cents a dollar indicating the company’s precarious shape.