Friday, January 4, 2013

Suntech Power Put Opportunity ($STP)

Suntech Power stock has been expensive versus its bonds for a while but now it is just expensive.

They have a bond maturity of $575 million in just over two months. These are trading at 55 cents (ytm >400%) even after the stock has doubled in the past month. No one can tell us how these are going to be repaid (free money from Chinese government is the bull case) and the company is not current on financial statements.

You can see on twitter that the marginal buyer of STP is a complete moron. I have a hypothesis that institutions run these stocks up so that they can unload them on retail.

The June puts (three months after the bond maturity) are 16 cents for the $0.50 strike and 35 cents for the $1 strike. The implied probability that the stock is a zero is too small.

We are not the only ones who have this idea. Today's volume on the March puts was 1300 contracts on the $1 strike and 5440 on the $1.5s.


CP said...

Typical garbage article:

Nexuiz said...

Li Keqiang has been pushing China's urbanization as a key factor in the nation's economic growth. China's Southern Metropolis Daily recently reported by 2020 the nation's urbanization plans is expected to create $6.24 trillion worth of investment. To support the industry the Chinese government last month confirmed a second round of subsidies will be provided to over 100 developers of solar projects.

That's $263 billion over the next 7 years? Are they serious?

CP said...

There's been an awful lot of "tawk" from China about their exciting plans for solar panels... but no talk about where the cash to pay the $575 million in bonds due in two months will come from.

misha said...

I think I asked this before but missed any replies. Any suggestions as to which brokerages trade STP bonds?

Interactive Brokers shows it as untradable

CP said...

I'm surprised you can't find a market on IB. The bond is pretty liquid. Have you tried talking to customer service about it?

I also think that this bond is probably a zero. I would be happy owning a certain amount of the puts unhedged.

effmanny said...

CP what date in March are the bonds due? 3/31? 3/1? 3/15? Thanks

CP said...