Wednesday, October 30, 2013

Latest Press Release From Suntech

Suntech springs back to life with a press release:

Suntech Power Holdings Co., Ltd. (NYSE: STP) ("Suntech" or the "Company"), one of the world's largest solar companies, today announced it has received an investment letter of intent from Wuxi Guolian Development (Group) Co., Ltd. ("Guolian") to make an equity investment into the Company of not less than US$150,000,000 in cash in connection with supporting a comprehensive rehabilitation and restructuring of the financial and operational affairs of the Company. In addition, it is intended that Guolian would, upon satisfactory terms and conditions, cause related solar and other businesses it owns to be injected into the Company and/or enter into joint venture or similar arrangements with the Company to take advantage of the Company's global platform, distribution networks, and other synergies.

Guolian is an investment company based in Wuxi, Jiangsu Province, China, with primary investments in finance and industry. The industry investments include downstream solar companies, power generation projects, textile industries, waste disposal facilities, and related environmental protection and energy projects. As of the end of 2012, the total assets and net assets of Guolian were approximately US$6.7 billion and US$2.6 billion, respectively.

Mr. Zhou Weiping, Suntech's CEO said, "Even though the investment letter of intent is indicative only and is not a firm commitment, this is an important step in the restructuring of the Company with key stakeholders. While there will be substantial dilution for existing shareholders, the successful implementation of these efforts will preserve the Company's international platform, rebuild the Company's operating assets, and rehabilitate the Company's global brand."

Guolian had previously participated in the competitive bidding process for Wuxi Suntech Power Co., Ltd. ("Wuxi Suntech"), the Company's principal operating subsidiary in China currently in administration. As previously disclosed, Jiangsu Shunfeng Photovoltaic Technology Co., Ltd. ("Jiangsu Shunfeng") had on October 8, 2013 been provisionally selected as the strategic investor of Wuxi Suntech, and on October 24, 2013 signed a strategic cooperation agreement with Wuxi Suntech. Such strategic investor will be officially selected pending approval during a second creditor's meeting of Wuxi Suntech scheduled on November 12, 2013 and then final confirmation by the Wuxi Intermediate People's Court. Guolian's investment letter of intent refers to a potential investment in Suntech Power Holdings Co. Ltd.
Hmm... that's different. How is $150 million going to settle the >$600 million in liabilities of the holding company?

I mean... you can't just buy $150 million of equity in an insolvent company. The creditors can take it. So it would have to be done as part of an insolvency proceeding.

I could see a deal where the holding company is reorganized and Guolian (for whatever reason) puts in money to buy a majority of the post-reorganization equity. Maybe the big holding company bondholders have agreed to go along and have their bonds convert into the new equity as well. In that case, they could vote for the plan, forcing minority bondholders to receive stock as well BUT the absolute priority rule would mean extinguishing the existing common stock.

16 comments:

Anonymous said...

So both bond and stock holders would have to vote to approve the proposed plan.

Guolian, STP and/or large bondholders would have to kick in 500k plus some sweetener for Trondheim to drop the CH7 proceedings..

If this COULD be done, then STP doesn't have to enter into an insolvency proceeding?

Then Guolian could get 50.50%, bondholders get 49% and existing shareholders get .50% or something along those lines.

And then this drags out even longer..

Anonymous said...

No that doesn't make sense.

There are two choices:
- pay holdout bondholders in full and keep the existing common stock
- go through bankruptcy to confirm plan which will extinguish common stock

Bankruptcy court won't allow a plan which impairs the equity to give value to the existing stock.

Anonymous said...

The only way then would be for STP to declare CH11 or enter into a scheme of arrangement.

So equity holders would be wiped out; not "substantial dilution for existing shareholders"

They would have to declare before the CH7 proceedings went to court but the Wuxi Suntech/Shunfeng bid approval is set for Nov 12th.

CP said...

The press release is very vague about details that a legitimate press release would be very straightforward about.

CP said...

It seems like the product that Suntech produces now is hopeful press releases.

Steve said...

"the investment letter of intent is indicative only and is not a firm commitment"

This is the key sentence. It doesn't give a judge any justification for delaying the Chapter 7 insolvency.

Anonymous said...

"It seems like the product that Suntech produces now is hopeful press releases. "

They are also very good at stringing along equity and bond holders.

Anonymous said...

Back room deals are not a reason for a judge to abstain from granting relief. If anything, it will just demonstrate that they are insolvent and that minority bondholders are right to be concerned about getting ripped off.

Anonymous said...

"Suntech Power Holdings Co., one of the world's largest solar companies, today announced it intends to challenge the petition for involuntary bankruptcy filed against it under Chapter 7 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in the Southern District of New York. The Company has until November 6, 2013 to respond."

Sound like no CH7 or CH11 filing in STP's plans.

John said...

In my view, this "letter of intent" is completely transparent and will make the odds of STP escaping chapter 7 even worse. Any seasoned bankruptcy judge will see right through this press release, and it will have the practical effect of shifting the burden of proof from Trondheim to STP.

Anonymous said...

STP reported there a fourth bondholder joined the chapter 7 case, which now is for $1.4 million in notes and counting.

The Guolian investment press release is likely an attempt to prevent other bondholders from joining the lawsuit.

The $150 million is the amount bondholders are likely looking for to complete a debt for equity swap.

Bondholders would get 25 cents of their bonds in cash and the remaining 75 cents in newly issued equity.

The reason bondholders want cash is because the equity will get diluted.

All this won't matter, however, since STP will likely get delisted and/or enter bankruptcy in the US, followed by Cayman Islands, long before the deals close.

Anonymous said...

Stop and think about a New York bankruptcy judge - what is he going to say about a company attempting to muddy the waters about ownership of bonds?

Anonymous said...

Suntech Holdings had guaranteed over $100M of loans to its subsidiaries in China so it wouldn't surprise me if Wuxi Guolian is putting up $150M in order to get banks to take haircut and prevent Suntech Wuxi from being liquidated next month.

Anonymous said...

Assets of STP
a) Stock in the Wuxi Suntech operating subsidiary. The company in is in bankruptcy and Shunfeng, has signed a preliminary agreement to buy the assets at price equal to less than 30% of the stated liabilities of the Wuxi operation.
b) A 79% interest in a solar farm entity, GSF that was formed in partnership with a European distributor. The entity has been plagued by fraud and mismanagement. Suntech Holdings has guaranteed €493 MM in loans to one of GSF’s operating subsidiaries. 30% of the generating capacity of the partnership has been seized by the Italian Government. The value of Suntech Holding’s equity interest in GSF will not be sufficient to cover the debt incurred to build them.
c) Ownership of various local subsidiaries outside of China. As of August 31, 2012. these had cash of $70MM and debt of $170MM.

Liabilities.
a) $541 MM of defaulted debt

b) Guaranteed €493 MM in loans to one of GSF’s operating subsidiaries,

c) $50MM convertible note, and guaranteed $66MM of loans and leases at subsidiaries.

STP today announced it has received an investment letter of intent from Wuxi Guolian Development (Group) Co., Ltd. ("Guolian") to make an equity investment into the Company of not less than US$150,000,000 in cash in connection with supporting a comprehensive rehabilitation and restructuring of the financial and operational affairs of the Company.

Are we to believe that Guolian or any other company is going to inject $150 million to a company who:

• Lost its manufacturing subsidiary.

• Has $541 MM of defaulted debt.
• Has €493 MM of outstanding guarantees.

Anonymous said...

The letter is definitely an attempt to prevent large bondholders from joining the Chapter 7 petition before the hearing takes place.

Additionally, in the event STP looses the judgement appeal, Guolian may acquire Suntech Holdings for $150M under a scheme of arrangements in Grand Cayman.

The only reason why Guolian may want to acquire Suntech Holdings is to get Chinese creditors of Wuxi Suntech to take a haircut / approve of the Shunfeng investment.

To have offshore creditors sue in China is an unprecedented legal situation that presents a number of risks to all of Suntech's creditors.

It seems like STP will stop trading within the next month or so.

Anonymous said...

"Again, nobody in China ever gets in trouble for defrauding U.S. investors.... They actually in some cases get rewarded for defrauding U.S. investors. This is something people have to keep in mind."