Dump! Potential Fraud Victim Suntech Power Stands To Lose $690 Million
Normally this column is pretty bullish on the solar industry due to its overall potential to play an important in meeting the world’s energy needs. But this isn’t a normal day. First Trina Solar (TSL :NYSE) admits that its Q2 numbers won’t meet anyone’s expectations and then Suntech Power (STP: NYSE) states it might be the victim of a scam to the tune of $690 million.
The story begins back in 2008 when Suntech bought 80 percent stake in Global Solar Fund for approximately $318 million. Dr. Zhengrong Shi, Suntech’s founder and chairman bought in for an additional 10 percent and GSF Capital owned the other 10 percent. Javier Romero is the sole owner of GSF Capital but Dr. Shi and Suntech’s CTO, Stuart Wenham, serve on GSF’s board and hold 50 percent of the votes.
During 2009 through 2011, Suntech sold $346.8 million worth of modules to companies in GSF’s portfolio. These sales accounted for 6.9 percent of Suntech’s net revenues.
But as the global economic crisis intensified and credit dried up, Suntech found itself guaranteeing a $683 million credit line to companies in GSF’s portfolio through the China Development Bank. GSF Capital pledged $690 million in German government bonds to Suntech for their guarantee with the Chinese government-run bank.
As Suntech’s revenues continue to evaporate and the need for capital has become greater, one of the largest solar manufacturers is now learning that the bonds may not exist.
This may or may not be a crushing blow to the solar giant as Q1 revenues were only $409.5 million and the cash and cash equivalent assets were $473.7 million.
But the real issue is that Suntech was starting to field offers for the potentially nonexistent bonds to pay off convertible notes due in 2013.
Needless to say Suntech is going to need to raise more cash and current shareholders will probably be punished as a result. Considering the amount of oversupply in the industry, the tariff situation in the U.S., and the EU starting to wonder whether or not Chinese companies were dumping solar panels in Europe, this situation will get worse before it gets better.
Shares of Suntech were down 14.01 percent in afternoon trading.