Suntech Finds Friend In Wuxi, Foe In NY

Bankrupt Suntech caught in web of global forces

Former solar energy pioneer Suntech (NYSE: STP) is getting caught in an increasingly complex web of global forces as it tries to emerge from bankruptcy, with the latest coming from its hometown of Wuxi and from a bankruptcy court in New York. While such tugs-of-war probably aren’t uncommon in such a complex case, Suntech’s strong international connections mean its reorganization could take longer than many previously expected. The case also highlights the unusual risks associated with companies that do so much trans-border business. The latest developments have seen Suntech’s hometown of Wuxi emerge as a major new investor in the company, and a group of debtors force it into a US bankruptcy court.

Company watchers will know that Suntech has many international connections. Its headquarters is in China, while its shares trade on the New York Stock Exchange. Its largest market is Europe, where it controls the Global Solar Fund that builds solar energy plants. Finally, the company also has billions of dollars in debt held by institutional investors from around the world, and billions more in outstanding loans from major banks in China.

Given that complex background, it’s not too surprising to see everyone trying to get a piece of Suntech as the company struggles to get back on its feet after being forced into bankruptcy earlier this year in a court in its hometown of Wuxi. At least some of Suntech’s overseas bond holders don’t seem to think they will get a good deal from the Wuxi court, which could be true since the judge may favor the company’s China-based stakeholders over foreign investors.

Those concerns have led a group of foreign bondholders to petition to have Suntech forced into a US bankruptcy court in the state of New York, a move that Suntech strongly opposes. (company announcement) I’m no expert on bankruptcy law, but the investors behind this move most likely believe the New York court will accept the case because Suntech’s shares are traded in New York. Suntech points out that the bond holders behind this move are a very small group, though I doubt that fact will persuade the New York judge to dismiss the case.

Meantime, Suntech has also announced that Wuxi Guolian, a fund presumably controlled by its hometown government, has signed a letter of intent to invest $150 million or more in the company as part of its reorganization. Wuxi Guolian is making the commitment even though the bankruptcy court hearing the case has already selected another firm, Shunfeng Photovoltaic (HKEx: 1165), to become Suntech’s strategic investor going forward. (previous post)

This new investment by Wuxi Guolian, if it happens, looks like a power play by the Wuxi government to ensure that Shunfeng doesn’t take control of Suntech and then close down all of its Wuxi operations. Such a limitation could seriously hamper Shunfeng’s efforts to reorganize Suntech’s main operations in Wuxi, forcing Shunfeng to keep operating facilities that it might otherwise want to close or relocate.

At the same time, Suntech is also grappling with some of its European assets, which were built by Global Solar Fund and have now been seized by a court in Italy for possible regulatory and other violations. On the whole, this story is certainly getting quite messy due to Suntech’s complex web of global connections. I do think the China-based groups will ultimately win the battle for control of the company, but it could be another 7 or 8 months now before Suntech can finally complete its reorganization and emerge from bankruptcy.

Bottom line: Suntech’s reorganization will take longer than expected due to a growing number of international claims against the firm, including a new bankruptcy petition in New York.

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