On March 20th, Wuxi Suntech, the main operating subsidiary of the world’s largest solar manufacturing company, Suntech Power Holdings, declared bankruptcy. This most recent event might seem like a continuation of consolidation in the global solar industry, where lowering prices are choking profit margins.
However, a series of behind-the-scenes international dealings also likely contributed to the bankruptcy. In addition to making revenues from manufacturing solar panels, Suntech Power Holdings also gives loans to or buys stock in other solar companies. Recently these smaller companies have been having trouble paying Suntech Power Holdings their dues, narrowing the company’s cash inflow and making it difficult for the company to pay back its own creditors. Records from the U.S. Securities and Exchange Commission show that an investment firm funded by Suntech Power Holdings and its founder Shi Zhenrong accounted for 29% of its uncollected bills as 2009 ended, larger than the company’s sales income. The company’s recent $451 million bond default was partly caused by the inability to get payment from its side investments; furthermore, the Chinese solar manufacturer became a victim of a $720 million fraud involving nonexistent German bonds, ultimately pushing it to relinquish Wuxi’s unit and potentially allowing Wuxi’s regional government to take over the plant. This particular case involves Suntech Power Holding’s founder Shi Zhengrong and the Global Solar Fund of Germany.
After finding the company in 2002 and going public in 2005, Shi received credit from China Development Bank Corporation to gain more control of the industry that was then dominated by German and Japanese competitors. Soon after, Suntech Power Holdings began expanding and investing in other solar projects, including the Global Solar Fund, run by Javier Romero—one of Suntech’s external sales agents in Spain. Romero persuaded Shi to provide funding to The Global Solar Fund in 2008, eventually giving Suntech an 86 percent equity stake and a $700 million loan from China Development Bank. This massive loan was said to be backstopped entirely by German government bonds. Problem is, these German bonds promised by Romero never existed. Suntech discovered this when it considered selling the bonds partly to pay its own debts. Now, owing nine different companies $1.2 million in debt, the parent company has made no moves to declare bankruptcy, but has fired Shi and replaced him with Zhou Wiping, a former manager at a state-owned enterprise named Guolian Development Group. Currently about 63% of Suntech Power Holdings’s creditors have agreed to extend the deadline for repayment. However, some bondholders are pushing to sue the company in U.S. courts to receive their proper returns. What does this mean for the global market? The bankruptcy of Suntech Power Holding’s subsidiaries but not the parent company might cause some tension in the international business, as large Chinese corporations are notorious for having ample support of the government and it might be assumed that now Suntech is still going to continue due to governmental backing.
In addition, the closing of Suntech’s largest manufacturing plant could mean more opportunities for the United States to compete in the solar supply chain. However, this could also affect the public’s faith in solar energy generation, and hurt its investment. The solar industry is hitting a crucial turning point. Will it continue growing, or will the bubble burst?
