Solar industry creditors need to see the light

By Yu Xi Source:Global Times Published: 2013-11-27 21:53:01

Illustration: Lu Ting/GT

Illustration: Lu Ting/GT



Jiangsu Shunfeng Photovoltaic Technology Co announced last week that it received approval from the Wuxi Intermediate People's Court on November 15 to acquire Wuxi Suntech Power Co, the major business arm of solar energy conglomerate Suntech Power Holdings Co, for 3 billion yuan ($492.9 million). With this decision, the reorganization of heavily indebted Wuxi Suntech can now get underway after it sought bankruptcy protection in March.

The decline and fall of Suntech, a company which is often described as the world's largest manufacturer of solar panels, has garnered much attention within China's photovoltaic industry. After all, few (if any) domestic panel makers are free of the problems - overcapacity, trouble overseas, weak internal management, etc - which ultimately laid Suntech low. Meanwhile, the company's main creditors, including State-owned financial giants like China Development Bank and Bank of China, are also being forced to reevaluate their position in an industry which, by many accounts, remains deeply troubled.

Formed in 2001 by Shi Zhengrong, Suntech Power quickly shot to the heights of China's emerging solar energy sector. But, more than a decade later, the company's glory days were long gone, a hard fact best exemplified by the 9.4 billion yuan reportedly still on its books.

At the top of Suntech's IOU list stands China Development Bank, which is reportedly still owed 2.37 billion yuan. Next comes Bank of China, with 1.76 billion yuan in outstanding loans. Other key creditors include Agricultural Bank of China, Bank of Shanghai and Bank of Jiangsu. Under bankruptcy regulations in China, these institutions (along with several hundred other Suntech creditors) are only eligible to collect 31 percent of their unpaid debt.

Recent reports suggest that China's leading commercial lenders have a renewed sense of the danger they face in lending to businesses engaged in the solar sector - for instance, credit is said to be in short supply these days for several of the smaller players within the industry's supply chain, including silicon pellet and battery makers.

On the other hand though, as demand for solar products recovers in the US and Japan, China's larger panel makers are becoming animated with new signs of life. Many of the biggest manufacturers are now finding it much easier to borrow than in the first half, when many saw the industry on the verge of total collapse, according to a recent China Business News article.

Although the tempest appears to be dying down, Chinese banks should remain cautious when lending to solar equipment producers. Creditors need to take a critical look at the industry's long-term prospects as well as the earnings information solar firms are handing over when applying for credit. Again, Suntech Power's example illustrates the risks of shortsighted thinking - between 2005 and 2008 Suntech had easy access to a steady stream of bank credit, fueling the overcapacity problems that eventually found the industry at the center of a major antidumping dispute beginning in 2011.

The local government of Wuxi also deserves mention for its role in Suntech's fate. In an attempt to create a leading new energy firm in its own backyard, the Wuxi government eagerly rolled out favorable policies and investment support to get Suntech off the ground.

But a surfeit of administrative assistance can only help a firm grow over the short run. Without an emphasis on technological know-how or professional management, a company can only advance so far. It's nothing new to see local authorities cultivating new energy companies during their early days; but, as recent reform documents make clear, the government can't be expected to hold a business's hand indefinitely.

Shunfeng's takeover isn't likely to be the end for Suntech. Over the next two years though, Shunfeng is expected to invest upwards of 3 billion yuan to improve technology and assets at the panel maker, according to The Beijing News. Whether the reorganization is successful or not, industry observers and market participants will certainly be anxious to see. Local governments and financial institutions also can't afford to look away as Suntech's story continues to unfold.

The author is a reporter at the Global Times. bizopinion@globaltimes.com.cn



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