Thursday, October 4, 2012

NYT Article on Chinese Solar Policy ($STP)

A useful tidbit from a NYT article about Chinese policy regarding the zombie solar firms.

In the solar panel sector, 'If one-third of them survive, that’s good, and two-thirds of them die, but we don’t know how that happens,' said Li Junfeng [at the] National Development and Reform Commission, the country’s top economic planning agency.

Mr. Li said in an interview that he wanted banks to cut off loans to all but the strongest solar panel companies and let the rest go bankrupt. But banks — which were encouraged by Beijing to make the loans — are not eager to acknowledge that the loans are bad and take large write-offs, preferring to lend more money to allow the repayment of previous loans. Many local and provincial governments also are determined to keep their hometown favorites afloat to avoid job losses and to avoid making payments on loan guarantees, he said.
Suntech Power is an interesting case: the bonds due in March are trading at 50 but the market cap is ~$170 million. The article mentions them specifically:
Jiangsu province, where Suntech has its headquarters and most of its factories, issued an unusual appeal to state-owned banks several weeks ago to continue lending money to the company, a step that Mr. Li criticized as inappropriate.
Last week, Suntech was given a "bailout" package by "a consortium of several banks" with the help or prodding of Wuxi, a city in Jiangsu.

I suspect that the Chinese government and banks are now "in for a penny, in for a pound." If they don't redeem the bonds due in March, then STP goes under and the latest decision to put in money looks dumb too. But if they prop it up by refinancing the bonds with Chinese bank loans, the whole thing can be spun as a success that just hasn't quite materialized yet.

Promising ideas would be to do debt for equity exchanges with funds that own the bonds, or ask the bondholders to take equity in lieu of repayment. Either way, the prospects for the bonds are better than for the stock.

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