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Stirling Capital Management is a client focused performance oriented investment firm. We are primarily conservative, deep value investors but we scour the globe for opportunity in any asset class with asymmetrical risk versus return characteristics. From an innovative fee structure to dynamic... More
  • Suntech Power (STP) Officially Enters Bankruptcy 0 comments
    Mar 11, 2013 11:12 AM | about stocks: STP, TSL, LDK

    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 creditbubblestocks.com for being way out in front on this entire story!

    Disclosure: I am short STP.

    Themes: solar, green energy, china Stocks: STP, TSL, LDK
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