End Draws Near For Suntech, Shareholders

Sunset looms for Suntech

The month of February could mark the final sunset for solar panel maker Suntech (OTC: STPFQ), with 2 major events on the calendar that look like the swansong for this former solar energy pioneer. If the ending does indeed come, it would be almost a year after Suntech first was forced into bankruptcy in a Chinese court in its home city of Wuxi, kicking off a contentious process that saw many of its top executives and board members leave and rival Shunfeng Photovoltaic (HKEx: 1165) purchase most of its China-based assets. One of the biggest remaining questions will be how much, if anything, holders of the company’s stock get for their shares.

Suntech announced the first important date on its calendar last month, when it said it would hold a creditors meeting on February 12, or next Wednesday, in the Caymen Islands where it is technically based. (company announcement) Items on the agenda for that meeting include election of a liquidation committee, hinting that a final plan was finally near.

A newer hint that the end was finally coming came over the just-ended Lunar New Year holiday, when Suntech announced it had reached a settlement with a group of creditors trying to force it into bankruptcy in a New York court. (company announcement) Under that settlement, the creditors agreed to temporarily halt their bid if Suntech could provide a liquidation plan agreeable to everyone by February 21.

That agreement hints that the creditors behind the New York petition have gotten a look at terms they are likely to get under the final liquidation plan, and are satisfied with what they’ve seen. That means we could potentially see a final plan announced at the February 12 meeting, which could be followed by a vote and finalization of the plan by February 21. If the plan is approved, which looks increasingly likely, Suntech could cease to exist as an independent entity by the end of this month and its shares could finally be de-listed from the over-the-counter market.

The question of how much those shares will be worth is still a big one, as reflected by a 22 percent drop in Suntech shares to 40 cents during the last trading session, valuing the company at about $72 million. Before the sell-off, the company’s shares had been relatively stable since December, trading in the 50-60 cent range. That sudden volatility probably represents shareholders’ realization that the end is drawing near, prompting some to sell at any price while they can still get money for their stock.

One research house told me as recently as early January that Suntech should be valued at around $130 million based on the latest price of its debt at that time. The price of the debt has probably dropped sharply since then, resulting in the current market value. I suspect the share price could creep down further still as we approach the February 12 meeting, though I don’t have enough information to make an educated guess about where it will finally bottom out.

When the end comes, Suntech will formally become the biggest victim of a painful period of restructuring for the solar energy sector. The company was one of the first to tap a boom in solar energy plant construction, but its heavy debt caused it to collapse when the sector got hit by oversupply after a massive build-up of new capacity in China. The company’s formal departure signifies an end to this painful chapter in the sector’s brief history, though we’re still likely to see 1 or 2 other major failures before the consolidation is finally complete.

Bottom line: Suntech could formally be dissolved by the end of this month, and its shares are likely to creep downward before final terms of its liquidation are announced in the next 1-2 weeks.

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