Beijing Ups Solar Targets As Suntech Liquidates

Sun sets on Suntech

More good news is coming for the rebounding solar sector with word that Beijing is accelerating its build-up of solar power plants in a bid to help the industry and also improve China’s dismal air quality. But that news is coming too late for rapidly disappearing sector pioneer Suntech (NYSE: STP), which has just announced it has formally launched a liquidation process that will end its life as an independent company. Suntech’s downbeat news isn’t really unexpected, and comes amid a much broader flurry of positive signs for a solar panel sector that is finally emerging from a downturn that has lasted nearly 3 years.

The latest piece of upbeat news from the corporate sector came just a day ago, when Trina (NYSE: TSL), one of the largest players, raised its shipment guidance for the third quarter by 20 percent, and said margins would also be significantly better than previously forecast. (company announcement) Trina’s news came after Canadian Solar (Nasdaq: CSIQ) gave a similarly upbeat update on its third-quarter results, including a return to profitability for the period. (previous post)

The latest good news for the sector comes from Beijing, which has raised an already aggressive target for new solar power plant construction even higher to help the industry. According to the latest reports, Beijing has raised the target by 20 percent, with an aim for 12 gigawatts of solar power capacity nationwide by 2014, up from a previous target of 10 gigawatts. (English article)

Beijing was always an aggressive supporter of the solar panel sector, offering generous incentives that led to a huge build up in manufacturing capacity. That resulted in massive oversupply that sparked the recent downturn. But while it supported a build up of manufacturing capacity, Beijing didn’t support a parallel build-up of domestic solar power plants, with the result that manufacturers like Trina, Canadian Solar and Suntech relied completely on Europe and the US for most of their sales.

Now Beijing is trying to rectify that imbalance with an aggressive build-up of solar plants, with an aim of 35 gigawatts of capacity by 2015. That target looks a bit unrealistic to me based on the 12 gigawatt target for 2014. But then again, perhaps we’ll see a sudden massive construction binge in response to Beijing’s recent calls to clean up China’s highly polluted air, and also the government’s determination to support solar panel makers.

That rapid domestic build-up may be good news for relatively healthy companies like Trina, Canadian Solar and Yingli (NYSE: YGE), but it comes too late for bankrupt Suntech, which has just filed an application for provisional liquidation in the Caymen Islands where it is technically based. (company announcement) This application looks like sunset may be imminent for the company, whose main manufacturing assets are being purchased by Hong Kong-listed Shunfeng (HKEx: 1165) for 3 billion yuan. ($500 million) (previous post)

There’s not much new to say about this latest development, except that it’s coming a bit faster than I had expected. I had previously said that Suntech’s bankruptcy reorganization could be delayed by litigation in New York and Italy; but now it appears the Chinese court hearing the case wants to go ahead and liquidate Suntech sooner rather than later.

One interesting footnote as the end draws near is what’s happened to Suntech’s stock. This kind of bankruptcy filing usually causes a company’s stock to become nearly worthless, since shareholders seldom recovery anything from such reorganizations. But in this case Suntech’s stock held its value, and was trading as high as $1.58 just 2 days ago. Now that the end is finally near, shareholders finally seem to realize they may not get anything. Suntech’s shares plunged 16 percent in Wednesday trade, and were down another 11 percent at $1.12 after hours. Look for the downward plunge to continue, until the shares hit the nearly worthless level where they should have been throughout the bankruptcy process.

Bottom line: Newly raised power plant targets will help China’s rebounding solar panel sector, but Suntech shares are likely to soon become worthless as the company liquidates.

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