Friday, November 1, 2013

According to Shunfeng Photovoltaic Term Sheet, Suntech Power Holding's Interest In Wuxi Suntech Will Be Extinguished

Shunfeng Photovoltaic has published the terms of the transaction [pdf] whereby it will buy Wuxi Suntech out of bankruptcy.

(i) Jiangsu Shunfeng, as purchaser;
(ii) Wuxi Suntech, the target company; and
(iii) the Administrator, the administrator of Wuxi Suntech appointed by the Wuxi Intermediate People’s
To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, each of Wuxi Suntech and the Administrator is an Independent Third Party.

Assets to be acquired
The Sale Equity Interests, representing the entire equity interests of Wuxi Suntech.
Upon Completion, Wuxi Suntech will become a wholly-owned subsidiary of the Company and the financial results of Wuxi Suntech are expected to be consolidated into the Group’s accounts.
The aggregate Consideration for the acquisition of the entire equity interests in Wuxi Suntech is RMB3,000,000,000 and is to be satisfied within one month upon Completion as follows: (i) the amount of RMB500,000,000 paid by the Company as deposit during the bidding process will be credited to the designated account of the Administrator as part of the total Consideration; and (ii) the amount of RMB2,500,000,000 shall be paid by the Company to the Administrator within one month upon both Conditions (1) and (2) below are satisfied.
Pursuant to the Agreement, the Consideration will be used to pay for (1) the bankruptcy expenses incurred by Wuxi Suntech; (2) the debts owed by Wuxi Suntech to its creditors and such debts have been reported to the Administrator and set out in the Restructuring Plan; and (3) certain debts that are recorded in the management accounts of Wuxi Suntech but have not otherwise been reported to the Administrator, and such debts satisfy the following conditions, (i) the statutory limitation period for debt recovery has not expired; (ii) the identity of the creditor is undisputed; (iii) such debts have not been repaid or set-off; and (iv) there is no other legal impediments preventing the creditors from asserting such rights.
The proposed sale and reorganisation of Wuxi Suntech was put through a competitive bidding process. Jiangsu Shunfeng made a bid for the proposed sale and reorganisation and the Consideration was included as part of such competitive bid. Whilst determining the amount of Consideration, the Company considered various factors, including the background of Wuxi Suntech, past financial performance and position of Wuxi Suntech, prospects of Wuxi Suntech and value of Wuxi Suntech based on the draft valuation report prepared by the valuer appointed by the Administrator.
The Board currently contemplates that the Company will finance the Acquisition through a number of means, including debt financing, internal resources or a combination of them. The Company has been in negotiations with certain financial institutions for financial support, and it is currently expected that the Acquisition will not be financed through capital fund raising exercise in the short run.
Conditions precedents
Completion of the Acquisition is conditional upon the fulfilment of the following conditions precedent:
1. the approval by the Shareholders at the EGM for the Agreement and the transactions contemplated thereunder; and
2. the Restructuring Plan being approved by the Wuxi Intermediate People’s Court.
The above Conditions cannot be waived by the parties in any event. If the Conditions could not be satisfied, the parties to the Agreement have the right to terminate the Agreement with immediate effect.
The Company understands that the Restructuring Plan is also subject to the creditors and equity interests holder’s approval in class meetings.
Completion shall take place on the date after all Conditions have been fulfilled. The Administrator is required to transfer the Sale Equity Interests to Jiangsu Shunfeng within five days from the payment of the Consideration by Jiangsu Shunfeng to the Administrator.
Other key terms
Pursuant to the terms of the Agreement, Jiangsu Shunfeng has agreed to, amongst others:
1. within two years after the Restructuring Plan is approved by the Wuxi Intermediate People’s Court, based on the business development of Wuxi Suntech, provide funds to Wuxi Suntech for the upgrading of the fixed assets and working capital;
2. acknowledge that Wuxi Suntech will bear all of its rights and obligations as an independent legal entity upon completion of the Wuxi Suntech Reorganisation;
3. bear all losses of Wuxi Suntech during the period when the Wuxi Suntech Reorganisation takes place, in particular, in respect of the losses of Wuxi Suntech during the period from 20 March 2013 to 31 October 2013, Jiangsu Shunfeng undertakes to bear losses up to RMB20,000,000 per month. Such RMB20,000,000 does not include expenses relating to depreciation of fixed assets, and amortization of intangible assets, impairments and provisions relating to other types of assets, losses from investments (other than listed shares) and bankruptcy fees incurred during the period from 20 March 2013 to 31 October 2013 (the ‘‘First Undertaking’’);
4. in addition to the Consideration, guarantee the payment of US$25,000,000 by Wuxi Suntech to Wuxi Guolian within three months after Completion (the ‘‘Second Undertakings’’, together with the First Undertaking, the ‘‘Undertakings’’).
The Undertakings formed part of the commercial terms that were required by the Administrator in the bid-invitation documents. These financial obligations are therefore part of the Consideration that are to be borne by Jiangsu Shunfeng as part of the Acquisition.
Pursuant to the terms of the Agreement, the Administrator has agreed to, amongst others:
1. manage and supervise the implementation of the Restructuring Plan;
2. ensure that the Consideration paid by Jiangsu Shunfeng will be applied for the repayment of the debts of Wuxi Suntech in accordance with the terms of the Agreement and the Restructuring Plan;
3. during the period between the Agreement becoming effective and completion of the transfer of the Sale Equity Interests, assist Jiangsu Shunfeng in operating the business of Wuxi Suntech and facilitate changes to the management structure of Wuxi Suntech proposed by Jiangsu Shunfeng, including but not limited to, changes to the board of directors of Wuxi Suntech; and
4. liaise with the relevant tax authorities in the PRC in order to obtain tax exemption for the Wuxi Suntech Reorganisation.
Restructuring Plan
Under the Agreement, it is provided that the Wuxi Suntech Reorganisation will take place in accordance with the terms of the Restructuring Plan. The Restructuring Plan is to be further agreed and finalised by Jiangsu Shunfeng and the Administrator, and is subject to the approval of the creditors of Wuxi Suntech and/or endorsement by the Wuxi Intermediate People’s Court. Further details of the Restructuring Plan will be set out in the circular in relation to the Acquisition to be despatched to the Shareholders.
Suntech Power Holdings will no longer own an interest in its primary operating assets. They're being sold at something like 30 cents on the dollar.

Our theory all along was that the Wuxi Suntech subsidiary was underwater and the holding company had no equity in it. That has been shown to be the case.

So why shouldn't the holding company liquidate now and give satisfaction to its creditors?


Anonymous said...

This is ammunition for the petitioners in the Chapter 7 case.

I wonder if Suntech Holding's creditors will sue Wuxi Suntech creditors in China and Shengfung's Chinese subsidiary that is purchasing Wuxi Suntech.

I also wonder if Wuxi Guolain will acquire STP Holdings for $150M after it voluntarily (or involuntarily) declares insolvency in the Cayman Islands.

Once the Wuxi Suntech deal closes, STP will no longer be solvent according to the Cayman legal definition, which is having more assets than liabilities.

STP Directors risk loosing all of their personal assets if they knowingly permit an insolvent company to operate.

Anonymous said...

What manufacturing assets in China will STP own assuming the sale of Wuxi Suntech to Shunfeng?

Anonymous said...

Shunfeng will scoop all of STP manufacturing (and R&D + IP) assets up if the deal closes.

The only PPE that STP did not fully own was it's 40% stake in P4.

2 Wuxi government investment companies owned 30% of P4 each.

Wuxi has proposed injecting part r all of the 60% stake into STP alongside a debt-for-equity swap with the offshore bondholders.

A majority of the Chinese lenders still have to approve of both the Shunfeng terms as well as the plan to repay $1.25 billion to them.

There will be a tug-of-war between the Chiense lenders and the minority bondholders in the NY and Wuxi courts this and next week.

Anonymous said...

P4 is worth $372.5 million (= investment + PP&E).

So, Wuxi's 60% stake is, at most, worth $224 million (due to PP&E depreciation).

$224 million is peanuts compared to to the billions Suntech has in short-term debt.


Anonymous said...

Looks like the bonds traded 19.80 today.. All time low?

Anonymous said...

Seemed like a fund pumped $10-20m into the equity pool between 9:45 and 10:15am today.

They wrote thousands of STP 2015 call options.

And they then bought thousands of 2014 put options.

It's going to be a good week.

CP said...

The P4 factory, which has a total investment of 450 million yuan (US$72.5 million) is not a subsidiary fully invested in by Suntech. Suntech only owns a 40% stake in the factory, with each of the two other state-owned companies in Wuxi holding a 30% stake.

Currently, P4, which is equipped with advanced equipment worth US$300 million, is still operating normally.