China Solar Drama Continues


China’s solar industry has made regular appearances in Pacific Money as various Chinese photo-voltaic (PV) companies deal with serious internal and systemic problems, in particular a crushing debt burden, chronic overcapacity and an inability to allow consolidation or closures.

The drama continues. After a unit of Suntech Power Holdings Co. went into a confusing bankruptcy in March this year having failed to cover a $541 million debt repayment, the company’s entire future has been sitting under a large question mark. The issue is difficult since foreign bondholders are faced with the old dilemma of enforcing any rulings they receive in U.S. courts back in China, where most of Suntech’s assets are located. Suntech has also received significant support and promises of support from the Wuxi government, including its investment arm Wuxi Guolian. Last week the U.S. Bankruptcy Court ruled in favor of certain bondholders, and Suntech has until the 6th of November to respond.

Today in the latest twist, Jiangsu Shunfeng Photovoltaic Technology Co. has apparently ridden at least in part to the rescue by agreeing to buy Suntech’s main unit (Wuxi Suntech Power Co.) for $492 million (3 billion yuan). Influential Shunfeng shareholder Cheng Kin Ming’s Fulai Investments Company in Hong Kong will soon complete the deal, adding the indirect asset to its 25 percent stake in LDK Solar Co. (another debt-saddled Chinese PV manufacturer).

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So the solar debt drama and overcapacity issues continue.  Shunfeng’s deal for Suntech is only the latest in the company’s solar energy shopping spree this year, which has already consisted of a 95 percent stake in Hareon Solar Technology Co.’s solar farms, and purchases of projects from Jetion Solar (China) Co. and Haiwei (Xinjiang) New Energy Co.

Despite an apparent desire in Beijing to tackle industries facing overcapacity, there has still been little traction at the local level, where immediate employment impacts and growth concerns seem to hold more sway than macro-economic restructuring pressure emanating from the capital. As companies such as Suntech and LDK continue to wriggle (with local government support) under their chronic overcapacity and debt burdens, China’s problems in a number of sectors continue, and the issue is very much political. 

As with many issues today in China, perhaps we will have to wait until the widely anticipated Third Plenum meeting (due to start next week) to see whether or not the country has the stomach for dealing with overcapacity. Reports from a number of troubled industries, including shipbuilding, airlines, solar and steel, suggest that so far there is a lack of genuine appetite for the painful medicine that seems to be required. Whether or not new policies are announced after the meeting, one thing is for sure: The twists and turns of China’s solar power saga will continue for the foreseeable future. 

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