Thursday, March 21, 2013

Suntech Power Holdings Watches Its China Unit Go Bankrupt

I haven't paid much attention to Suntech Power Holdings (STP) other than to note in 2008 that they claimed the ability to manage price declines in a strong market.  Well, they're back in the news today and those claims from four years ago look like a bunch of hooey.  Suntech's Chinese manufacturing subsidiary is in bankruptcy proceedings.  That's just great.  China's strategy of putting foreign solar competitors out of business by subsidizing its cheapest domestic manufacturers has now come full circle.

No one is willing to turn off production at Suntech's Chinese plant as long as state-owned enterprises have a hand in its restructuring.  Local Chinese officials willing to help restructure the company's debt no doubt wonder what's in it for them.  Corruption will enrich some Party officials in Wuxi Suntech Power Holdings' regulatory food chain while continued overproduction depresses PV panel prices.  The tragedy of China is its inability to see how the state-directed mechanisms of its miracle growth story are now harmful as industries reach maturity.  I noticed that Suntech has a San Francisco office at 71 Stevenson Street.  Maybe I'll swing by and grab some coffee before they put the office furniture out on the curb for pickup.  Nah, I'm too busy.

Asking what comes next for bondholders gets an easy answer:  Bondholders get nothing.  One would know from reading the company's recent financial statements that they were having difficulties.  Their Form 20-F filing from April 27, 2012 has financial data after page 117, showing assets exceeding liabilities but with a retained earnings deficit of -US$365M for 2011.  They did incur a billion dollar loss that year, so things were looking bad even then if anyone cared to look.  The accounting of some Chinese publicly-traded stocks is so thoroughly obscure (and sometimes fraudulent) that nothing reported from that country can be taken seriously.  No sane U.S. investor could possibly decipher a Chinese manufacturer's business model unless they speak Chinese, have Chinese relatives, have lived in the mainland for years, and have a personal network of contacts in the Party who can feed them unaltered economic data.

I still haven't found that long-term solar play for my own portfolio.  I'm glad I didn't pick STP as some kind of sector play back in 2008.  I still like solar power and my adage from back then still stands:  The least complicated technology that uses the most widely available source material has the greatest likelihood of long-term commercial viability.  Some U.S. energy company could make a lot of money for decades with a concentrated solar power installation in the American West.

Full disclosure:  No position in STP at this time.