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| Chinese Solar Panel Giant Is Tainted by Bankruptcy | |
| (about 17 hours later) | |
| HONG KONG — It was the Icarus of the solar power industry. And, on Wednesday, it fell to earth. | HONG KONG — It was the Icarus of the solar power industry. And, on Wednesday, it fell to earth. |
| The main subsidiary of Suntech Power, one of the world’s largest makers of solar panels, collapsed into bankruptcy in a remarkable reversal for what had been part of a huge Chinese government effort to dominate renewable energy industries. | The main subsidiary of Suntech Power, one of the world’s largest makers of solar panels, collapsed into bankruptcy in a remarkable reversal for what had been part of a huge Chinese government effort to dominate renewable energy industries. |
| The bankruptcy is a sign of the worldwide consolidation of the solar industry, which has been crippled by a glut of products on world markets and Western tariffs on Chinese products. It also signals China’s unwillingness to continue to subsidize struggling manufacturers in the industry, which is contributing to the steep decline of its green energy pursuits. | The bankruptcy is a sign of the worldwide consolidation of the solar industry, which has been crippled by a glut of products on world markets and Western tariffs on Chinese products. It also signals China’s unwillingness to continue to subsidize struggling manufacturers in the industry, which is contributing to the steep decline of its green energy pursuits. |
| More than any other country, China had leaned heavily on renewable energy to solve its problems of severe air pollution and dependence on energy imports from politically unstable countries in the Middle East and Africa. | More than any other country, China had leaned heavily on renewable energy to solve its problems of severe air pollution and dependence on energy imports from politically unstable countries in the Middle East and Africa. |
| Suntech, a centerpiece of the country’s efforts, had grown to 10,000 employees in its hometown, Wuxi, on China’s east coast, and even set up a small factory in Arizona to assemble panels. But a tenfold expansion of Chinese solar panel manufacturing capacity from 2008 to 2012 pushed down the price of solar panels about 75 percent, undermining the economics of the business. | Suntech, a centerpiece of the country’s efforts, had grown to 10,000 employees in its hometown, Wuxi, on China’s east coast, and even set up a small factory in Arizona to assemble panels. But a tenfold expansion of Chinese solar panel manufacturing capacity from 2008 to 2012 pushed down the price of solar panels about 75 percent, undermining the economics of the business. |
| The rapid expansion of natural gas production in the United States and a curtailment of subsidies in the European Union also hurt prices, as did the United States’s imposition of import tariffs totaling about 40 percent after an antidumping and antisubsidy investigation last year. | The rapid expansion of natural gas production in the United States and a curtailment of subsidies in the European Union also hurt prices, as did the United States’s imposition of import tariffs totaling about 40 percent after an antidumping and antisubsidy investigation last year. |
| The European Union is completing its own trade investigation of Chinese solar panel shipments that could lead to steep tariffs there as well. | The European Union is completing its own trade investigation of Chinese solar panel shipments that could lead to steep tariffs there as well. |
| After Suntech grew spectacularly, with production that soared year after year on heavy investment, and after Western investors bought up its New York-traded shares and its international debt issues, the company was battered by plummeting prices as the overall manufacturing industry sank. | After Suntech grew spectacularly, with production that soared year after year on heavy investment, and after Western investors bought up its New York-traded shares and its international debt issues, the company was battered by plummeting prices as the overall manufacturing industry sank. |
| Ocean Yuan, the president of Grape Solar, an importer of solar panels based in Eugene, Ore., said he foresaw a series of bankruptcies by big Chinese solar panel manufacturers, some of which, like Suntech, have very high debt. Chinese manufacturers lost as much as $1 for every $3 of sales last year as they struggled to keep factories open despite falling prices. | Ocean Yuan, the president of Grape Solar, an importer of solar panels based in Eugene, Ore., said he foresaw a series of bankruptcies by big Chinese solar panel manufacturers, some of which, like Suntech, have very high debt. Chinese manufacturers lost as much as $1 for every $3 of sales last year as they struggled to keep factories open despite falling prices. |
| “They are bleeding every day,” Mr. Yuan wrote in an e-mail. “The more they sell, the more they lose money.” | “They are bleeding every day,” Mr. Yuan wrote in an e-mail. “The more they sell, the more they lose money.” |
| He predicted that solar panel manufacturers in Europe and the United States would also face crippling financial pressures and that the long-term survivors in the industry would be manufacturers in Taiwan, who have low costs and are not subject to the American import tariffs or the likely European tariffs. | He predicted that solar panel manufacturers in Europe and the United States would also face crippling financial pressures and that the long-term survivors in the industry would be manufacturers in Taiwan, who have low costs and are not subject to the American import tariffs or the likely European tariffs. |
| Chinese banks quietly asked a court in Wuxi on Monday to declare the operating subsidiary, Wuxi Suntech, insolvent and begin reorganizing it. The subsidiary notified the court on Wednesday that it did not object to the insolvency petition. | Chinese banks quietly asked a court in Wuxi on Monday to declare the operating subsidiary, Wuxi Suntech, insolvent and begin reorganizing it. The subsidiary notified the court on Wednesday that it did not object to the insolvency petition. |
| Suntech Power, the parent, said that it was not filing for bankruptcy and would continue to honor warranties on the company’s solar panels. | Suntech Power, the parent, said that it was not filing for bankruptcy and would continue to honor warranties on the company’s solar panels. |
| The bankruptcy filing is widely expected to lead to a takeover of the Wuxi operations by Wuxi Guolian Development Group, a financial conglomerate controlled by the city government of Wuxi. | The bankruptcy filing is widely expected to lead to a takeover of the Wuxi operations by Wuxi Guolian Development Group, a financial conglomerate controlled by the city government of Wuxi. |
| A woman who answered the phone at Wuxi Guolian’s headquarters on March 13 said that her company was involved in a Suntech acquisition but declined to provide details or her name. | A woman who answered the phone at Wuxi Guolian’s headquarters on March 13 said that her company was involved in a Suntech acquisition but declined to provide details or her name. |
| On Tuesday, Suntech Power announced the appointment of a new president, Weiping Zhou, a longtime Wuxi Guolian executive who had been the chairman of that company’s futures trading subsidiary. | On Tuesday, Suntech Power announced the appointment of a new president, Weiping Zhou, a longtime Wuxi Guolian executive who had been the chairman of that company’s futures trading subsidiary. |
| In its statement announcing the bankruptcy of Wuxi Suntech, Suntech Power did not mention any immediate role for Wuxi Guolian. David W. King, the chief executive of Suntech Power, said the company would “continue to work closely with all of our stakeholders and take the necessary steps to put Suntech back on track for growth.” | In its statement announcing the bankruptcy of Wuxi Suntech, Suntech Power did not mention any immediate role for Wuxi Guolian. David W. King, the chief executive of Suntech Power, said the company would “continue to work closely with all of our stakeholders and take the necessary steps to put Suntech back on track for growth.” |
| Suntech Power is traded on the New York Stock Exchange, and had a market capitalization of $16 billion at its peak. Its stock, which was already taking a beating, closed at just under 59 cents a share on Tuesday before trading was halted in response to the bankruptcy. The stock had reached $88.35 at its peak five years ago. Several competitors, including Trina, JA Solar and Yingli, posted increases in a generally robust market. | Suntech Power is traded on the New York Stock Exchange, and had a market capitalization of $16 billion at its peak. Its stock, which was already taking a beating, closed at just under 59 cents a share on Tuesday before trading was halted in response to the bankruptcy. The stock had reached $88.35 at its peak five years ago. Several competitors, including Trina, JA Solar and Yingli, posted increases in a generally robust market. |
| “There’s some feeling out there among investors that this will take some of the capacity offline,” said Adam Krop, an analyst at Ardour Capital Investments, adding that Suntech was likely to continue production at some level with government support aimed at preserving jobs. There may also be renewed enthusiasm for solar stocks among investors, Mr. Krop said, as the prices of panel components like polysilicon, wafers and cells have been edging up since the beginning of the year. | “There’s some feeling out there among investors that this will take some of the capacity offline,” said Adam Krop, an analyst at Ardour Capital Investments, adding that Suntech was likely to continue production at some level with government support aimed at preserving jobs. There may also be renewed enthusiasm for solar stocks among investors, Mr. Krop said, as the prices of panel components like polysilicon, wafers and cells have been edging up since the beginning of the year. |
| The company failed to make payments last Friday on $541 million of convertible debt. | The company failed to make payments last Friday on $541 million of convertible debt. |
| The fact that Suntech Power’s Chinese subsidiary filed for bankruptcy protection without the parent also filing may cause acrimony over whether foreign creditors are being treated unfairly compared with domestic creditors in China. | The fact that Suntech Power’s Chinese subsidiary filed for bankruptcy protection without the parent also filing may cause acrimony over whether foreign creditors are being treated unfairly compared with domestic creditors in China. |
| It is rare for Chinese companies to file for bankruptcy, as the government sometimes steps in to avoid damaging the broader reputation of Chinese companies’ creditworthiness. | It is rare for Chinese companies to file for bankruptcy, as the government sometimes steps in to avoid damaging the broader reputation of Chinese companies’ creditworthiness. |
| The insolvency filing by Wuxi Suntech sets off a potentially complex legal fight that could damage international investors’ faith in Chinese bonds, after many months of scandals that have already hurt enthusiasm for the overseas-listed shares of Chinese companies. | The insolvency filing by Wuxi Suntech sets off a potentially complex legal fight that could damage international investors’ faith in Chinese bonds, after many months of scandals that have already hurt enthusiasm for the overseas-listed shares of Chinese companies. |
| Wuxi Suntech holds virtually all of the factories and other physical assets of Suntech Power, and these assets are in China, which makes it easier for the Chinese banks to take ownership of them. Foreign lenders to Suntech Power, like the investors who bought its convertible bonds, are “structurally subordinate” to the Chinese lenders in trying to recover their money from these assets, according to legal experts. | Wuxi Suntech holds virtually all of the factories and other physical assets of Suntech Power, and these assets are in China, which makes it easier for the Chinese banks to take ownership of them. Foreign lenders to Suntech Power, like the investors who bought its convertible bonds, are “structurally subordinate” to the Chinese lenders in trying to recover their money from these assets, according to legal experts. |
| But most of the Suntech group’s sales were in the United States and Europe, because China’s renewable energy policies tended to emphasize manufacturing subsidies that would allow Chinese companies to capitalize on foreign governments’ subsidies for consumers. Foreign lenders could have an advantage in seizing dollars and euros in overseas accounts, as well as the money that overseas buyers still owe Suntech, which allowed many creditors to delay paying for panels until months after they were delivered. | But most of the Suntech group’s sales were in the United States and Europe, because China’s renewable energy policies tended to emphasize manufacturing subsidies that would allow Chinese companies to capitalize on foreign governments’ subsidies for consumers. Foreign lenders could have an advantage in seizing dollars and euros in overseas accounts, as well as the money that overseas buyers still owe Suntech, which allowed many creditors to delay paying for panels until months after they were delivered. |
| Another complexity is that Suntech Power is incorporated in the Cayman Islands. The bankruptcy laws there do not usually allow reorganization, and companies tend to be liquidated instead. But the convertible bonds issued by Suntech Power specified that any dispute involving the bonds would have to be resolved under New York State law. | Another complexity is that Suntech Power is incorporated in the Cayman Islands. The bankruptcy laws there do not usually allow reorganization, and companies tend to be liquidated instead. But the convertible bonds issued by Suntech Power specified that any dispute involving the bonds would have to be resolved under New York State law. |
| Last week, Suntech closed its factory in Goodyear, Ariz. It was an operation of just 43 people who put aluminum frames and electrical junction boxes on solar cells from China so that the products could qualify for “Buy American” programs. | Last week, Suntech closed its factory in Goodyear, Ariz. It was an operation of just 43 people who put aluminum frames and electrical junction boxes on solar cells from China so that the products could qualify for “Buy American” programs. |
| In announcing the bankruptcy of Wuxi Suntech, the corporate parent did not specify the debts of its subsidiary. Xinhua, the Chinese state-run news agency, said Wuxi Suntech owed 7.1 billion renminbi, or $1.1 billion, to nine Chinese banks. It did not explain why only eight banks joined the insolvency petition, or the extent of the loans to Wuxi Suntech by the unidentified ninth bank. | In announcing the bankruptcy of Wuxi Suntech, the corporate parent did not specify the debts of its subsidiary. Xinhua, the Chinese state-run news agency, said Wuxi Suntech owed 7.1 billion renminbi, or $1.1 billion, to nine Chinese banks. It did not explain why only eight banks joined the insolvency petition, or the extent of the loans to Wuxi Suntech by the unidentified ninth bank. |
| The bankruptcy comes after a dozen solar panel manufacturers in the United States and a dozen in Europe have either failed or cut back production after finding that they were unable to cover their costs at the current low prices for solar panels. | The bankruptcy comes after a dozen solar panel manufacturers in the United States and a dozen in Europe have either failed or cut back production after finding that they were unable to cover their costs at the current low prices for solar panels. |
| The industry’s problem is that most of the cost of a solar panel lies in building the factory, not in operating the equipment. So when the industry has severe overcapacity, as it does now, each company continues running its factories to cover its tiny operating costs, and at least a small part of the interest on the loans it took out to buy the costly factory equipment. | The industry’s problem is that most of the cost of a solar panel lies in building the factory, not in operating the equipment. So when the industry has severe overcapacity, as it does now, each company continues running its factories to cover its tiny operating costs, and at least a small part of the interest on the loans it took out to buy the costly factory equipment. |
| But when every company pursues that strategy, the whole industry loses money and virtually no business is able to cover its full interest costs. | But when every company pursues that strategy, the whole industry loses money and virtually no business is able to cover its full interest costs. |