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  • Suntech Power (STP) Officially Enters Bankruptcy

    Chinese news out that Suntech Power (NYSE:STP) has officially begun bankruptcy proceedings. As a result, the convertible notes look to be deeply impaired and the equity is very likely worthless.

    "Suntech Officially Seeks Bankruptcy Protection"

    The article states that STP's is in bankruptcy now and is being nationalized with the government (wuxi city) taking full control of assets and operations.

    My read on this is that they are likely carving out the viable assets to reorganize and keep workers employed, these assets look to have been effectively nationalized. Bondholders should probably not hold their breath expecting to see any of this value. It appears that some of the other assets may be sold off. The article quotes "more than 200B in surface liabilities" but that even the government is not clear on what kind of liabilities in total the company faces.

    Even 2 months ago the company appears to have already been struggling to just fund daily operations.

    "Suntech Cancels Annual Bonus Due to Working Capital Shortage"

    This article also states repeatedly that there is "no hope for financing" and "no injection of new capital for the government, banks and nobody willing to step in for the equity".

    It is not entirely clear how to translate this exactly but my native born translator reads that halfway down the article states "large shareholders such as Shi Zhengrong are to be replaced by the government". If this is true then the stock is now worth literally nothing and should trade down close to $0 soon.

    The repeated statements about more internal fraud are very concerning as well. Considering STP's history of related party transactions and internal control issues this is not surprising. I believe this is likely the early innings of a public humiliation of the founder and ousted executive Zhengron Shi that is necessary to justify the nationalization and bankruptcy of his company.

    With the single largest shareholder being accused of evading taxes and committing fraud I do not believe the Chinese government will be kind to shareholders.

    "Suntech Power Found to Have Evaded CNY 6Mn in Taxes"

    With the bonds trading at 30-40 range for months, bankruptcy should not be a surprise to anyone. Now this fraud-ridden, loss generating company is literally being nationalized by the Chinese government and is in bankruptcy as we speak. Why anyone would invest in the stock here at all, let alone at $1.17 where it implies a $211m market cap value, is beyond me. The >$500m in convertible notes are likely to be deeply impaired and the stock is, at best, worth much less than half of where it is currently trading and I believe the stock is most likely worth literally nothing.

    EDIT: I originally published this article over the weekend but since there have been other news sources coming out on this topic. There are a lot of moving parts here but recent news is out that the convertible note holders will have half of their notes converted into equity and have agreed to give the company 2 months,

    "The convertible bonds is to be converted half into equity"

    There are no details presented on how this could or would be done but given that half of the face value of convertible notes is $287m there is no way this is good for the equity. It is not clear or explained why a Chinese bank would guarantee offshore junior level parent company debt for a nationalized company in bankruptcy. However, if the converts are going to take half their value in equity this is going to be incredibly dilutive to current equity holders at best.

    Hat tip to for being way out in front on this entire story!

    Disclosure: I am short STP.

    Mar 11 11:12 AM | Link | Comment!
  • Keynes as a fund manager

    I saw this awhile back and thought it was interesting.  I did not previously know that Keynes was also a money manager.  His performance was quite impressive also.


    In 1927, he was appointed manager of the “Chest Fund” at King’s College in Cambridge. As the chart shows below, he was extremely successful as a money manager during a time of unprecedented deflation, depression, bear markets and world war. His fund was up an average annualized return of 9.1% compared to -1% of UK stocks.

    Chest Fund Performance 1927 to 1946

    John Maynard Keynes’s investment strategy is, in many respects, similar to Buffet’s investment strategy.  And even he is impressed. In his 1991 shareholder’s report, Buffett has acknowledged Keynes’s influence on him. Keynes was a man “whose brilliance as a practicing investor matched his brilliance in thought.”

    John Maynard Keynes’s Contrarian Investment Strategy

    How did John Maynard Keynes achieve such a remarkable success? Years later, he revealed his technique: “My central principle of investment is to go contrary to general opinion, on the ground that, if everyone is agreed about its merits, the investment is inevitably too dear and therefore unattractive.”

    In 1933, at the depth of the Great Depression, Keynes took a contrarian position by acquiring the preferred shares of big-utility holding companies in the United States. “They are now hopelessly out of favor with American investors and deeply depressed below their real value,” he said.

    He bought, amongst others, National Power & Light Preferred, which he noted yielded 15%, was awash with cash and whose earnings were rising again. He even bought these and other high dividend paying stocks on margin.

    His bet proved to be highly profitable, as his preferred stocks doubled and tripled in value over the next few years. But, I should also emphasize that Keynes was no trader. He bought and held these stocks through thick and thin. He even held good-quality stocks during the 1929-33 bear market, and he was almost wiped out.

    Thus, Keynes, like most of us, lost big money during the 1929 crash and subsequent bear market. But surprisingly he didn’t see this as a weakness. He took a positive attitude about bear markets:

    “I feel no shame at being found still owning a share when the bottom of the market comes… I would go much further than that. I should say that it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself. Any other policy is anti-social, destructive of confidence and incompatible with the working of the economic system. An investor…should be aiming primarily at long-period results, and should be solely judged by these.” 
    Sep 08 3:41 PM | Link | Comment!
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