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Commentary: The rise and the possible fall of Suntech
Jackie Chang, DIGITIMES, Taipei [Friday 15 March 2013]

Suntech Power Holdings, a China-based solar module giant, said on March 11, 2013, that it has signed a forbearance agreement with the holders of more than 60% of the firm's 3% convertible notes. The forbearance agreement between Suntech and the note holders means the holders agreed to wait until May 15, 2013 to exercise their rights if Suntech does not make payments by March 15, 2013, the due date of the notes.

The market has been buzzing about the likelihood of a default by Suntech. According to the New York Times, as Suntech is close to running out of cash, the firm may be taken over partly or entirely by Wuxi Guolian, a holding company owned by the municipal government of Wuxi, China, where Suntech is situated.

China-based Suntech was once the largest solar producer in the world. According to a report by Solarbuzz, a market research institute, in 2010, the top two solar cell producers were Suntech and JA Solar, another China-based firm.

Suntech was founded in 2001 by Shi Zhengrong, who is an Australian citizen. At the height of the firm's operation, the shares were worth around US$16 billion in late 2007, according to a report by Australia-based media, the Sydney Morning Herald. The report added that Suntech shares have been falling significantly and is currently worth around US$121 million.

In the second quarter of 2011, the firm saw solar module shipments increase by 48% on year despite falling quarterly revenues and a huge net loss of US$259.5 million. By October 2011, Suntech issued a statement denying the rumors regarding bankruptcy, and in November 2011, the firm reported third-quarter net loss of US$116.4 million, a significant decrease compared to the second quarter.

Despite the rumors, Suntech remained the top solar firm by module shipment volume in 2011, according to a report by IMS Research. Suntech was the first solar firm to ship over 2GW of solar modules in 2011, said IMS Research.

Faced with problems such as the US anti-dumping and anti-subsidy punitive tariff and a fraud case, 2012 was a tumultuous year for the solar giant. In a press release in May 2012, Suntech said "gross profit and gross margin in the first quarter of 2012 were impacted by a provision for preliminary US countervailing and anti-dumping duties of US$19.2 million, or 4.7% of revenues." The firm reported net loss of US$133 million for the first quarter of 2012. By the end of the first quarter of 2012, the firm's debt ratio reached around 81.65% compared to 65% in the end of first-quarter 2011.

Suntech soon faced another problem. The firm's subsidiary, Global Solar Fund (GSF), has been charged by courts in Italy for illegally constructing solar PV system installations to obtain subsidies. In fact, in July 2012, Suntech announced that a third-party investor of GSF may have provided fake German bonds up to EUR560 million (US$728 million) to Suntech as collateral related to security interest and the firm may have been the victim of fraud. Suntech has reached a settlement agreement on this case with the third-party investor and is currently owning a 88.15% stake in GSF, according to a company press release issued on March 7, 2013.

The turmoil of the firm does not stop there. On November 15, 2012, Suntech announced plans to reduce production at its plant in Arizona, US. By March 12, 2013, the firm announced plans to close the plant by April 3, 2013. Suntech stated that the punitive tariff on China-made solar cells by the US government is one of the reasons for the firm to close the Arizona plant as solar cells are a key ingredient in making solar panels. Suntech is subject to a 35.97% punitive tariff, relatively low compared to other China-based firms that face a tariff rate of 249.96%.

According to the New York Times article, Suntech stopped releasing financial results in 2012 after the announcement of the fraud case.

Suntech has been facing high debt ratio in recent years. In fact, this is also the case for LDK, another solar giant in China. Both firms once ruled the global solar market. In recent years, the global solar market has been hit by turbulence such as the trade war and the rapid falls of product prices. Being heavily subsidized by the government, China-based solar firms have been criticized by competitors. China government has been using the same tactics on other industries such as display and LED. Through heavy subsidization, China is able to nurture the infant industries. But because of the heavy subsidies, firms expand too much and too quickly in numbers and capacity. The massive expansion usually results in falling product prices and a string of bankruptcies starting with small-size firms. In fact, there are many small- and medium-size solar firms in China that rely on OEM orders from tier-one firms like Suntech and LDK. The effect of the possible fall of Suntech is much greater than it appears.

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