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  • stockpro15 Mar 12, 2013 10:40 AM Flag

    Suntech restructuring road map

    1) 3 subsidiaries (Luyong, shanghai and Yanghzou) holding production plants are swapped for local debt.
    2) GSF assets are sold or used as collateral to pay convertible debt holders.
    3) New Suntech have less production capacity and less debt. International sales channel and projects are maintained as well as the listed company.

    Sentiment: Hold

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    • stockpro16 -- Would you mind responding to this stock analyst's take on the current STP situation (below)? Thanks!!

      “This one is screaming sell.... The only chance I can see making money here in the short term is by way of a leveraged buyout or takeover. Which is extremely unlikely given the company's business and condition of the balance sheet.

      If the company is restructuring debt to avoid defaulting, then they are on the verge of bankruptcy. If they file for bankruptcy protection the stock more than likely goes to zero. Another scenario is that they issue more shares of stock to pay the debt (secondary offering). In this case the value of your brothers shares will be diluted significantly, possibly to the point of being worthless. Throw in the fact that this is a Chinese company (the accounting used by many Chinese corporations has been called into question), the company is in an extremely unstable industry with thin profit margins, high competition, and a lions share of their revenue coming from government tax credits. If he can salvage even a small percentage I would do so.

      There is no way to predict what the stock will do, but if it were my client I would tell them to sell.”

    • So just to clear my thoughts:

      1) it is conjecture that Chinese gov will buy 3 subsidiaries. STP is out of options and why wouldn't the local gov/best pick the best assets it can get and leave stp poorer in the process, as opposed to pick the worse assets for themselves to leave the better ones to the holding company to increase its shareholder value? I understand the local gov probably won't be interested in GSF, but wuxi is definitely not off limits. If local gov wants wuxi, STP can't say no because the alternative is much worse. Besides, the only reason the local gov wants to help stp is because it involves local jobs, which probably means wuxi jobs. Why would wuxi gov taking over the 3 subsidiaries in other cities while leave the one that affects it the most with suntech?

      2) Take for granted the 3 subsidiaries were taken, what happens to P/BV? There are two cases: a) if the 3 subs consist of a considerable portion of the current BV, then we see BV decreases and P/BV increases. However in this environment is the increased P/BV sustainable? I say it is not sustainable and stock price will drop so that P/BV will drop inline to its profitability. b) If the 3 subs are only a small portion of the total BV, then little changes, and you still have low stock price.

      3) The above analysis ignores the fact that bondholders still have to be paid at most two months from now. Even if they can sell assets to satisfy the bondholders, do you think they can get a good price under this situation? If they don't sell assets and try to extend the maturity or convert to equity, will the terms be favorable to stock holders? I think its either very high interest rate, massive dilution, or loss of key assets at poor price.

      4) The above still ignores the 500 mil fictitious bonds it backed. I don't know enough what that is going to happen.

      Conclusion: stock holders and most likely bond holders are done.

      • 1 Reply to zyzhu2003
      • Just to clarify about my 1), STP has subsidiaries in various cities in China. The biggest is in Wuxi. If the Wuxi city gov takes over the wuxi sub or do nothing at all, then game is over. But if for some inexplicit reasons they in the unlikely event choose to take over STP subsidiaries in other cities, then it will be situation 2) and 3).

        Oh God, I probably have spent too much time on this stock.

    • So I mentioned the maximum debt reduction from your 1 is 129mm. It is achieved when the banks forgive all debts for nothing and all assets go to the new STP. That reduces the outnstanding convertible bond from 541 to 541-129=412mm, still not manageable.

      I do not know how much they can sell GSF for, but don't think they can sell close to 300mm. I am still looking for this info. But think that they still won't able to repay 412mm even if they sell it. If you can find info about how much GSF is likely to be worth, can you post?

      Even if they manage to get to 3), the new STP will have less debt in absolute terms but debt to equity ratio is likely to go up as equity is likely to be 0.

      • 1 Reply to zyzhu2003
      • stockpro15 Mar 12, 2013 11:53 AM Flag

        Luyong Suntech and Shanghai (the subsidiaries that might declare bankruptcy) own production plants with fixed assets. I know for sure that one production plant produces 400MW and is a high cost plant. As part of the restructuring plan, plants which will be owned by Guolian will compensate for local debt owned by Suntech. If you have access to the balance sheet of the subsidiaries can you look at how much fixed assets are?

    • stockpro15: Really appreciate your insights. Question: If STP survives this bankruptcy threat, and a "new" STP emerges, does that mean it'll still be listed on the exchange? Will it still be a player in the solar sector? Thanks much.

      • 2 Replies to aloeluo2002
      • If STP appears as a new company, the old shareholders are wiped out for nothing, they will issue new
        Do not be dreaming, you should fight now.

      • stockpro15 Mar 12, 2013 12:01 PM Flag

        Chinese government dont want to be embarrassed by letting a Solyndra go bankrupt especially as renewables is one of the strategic industries for Chinese 5 year development plan. The listed Suntech is a BVI at Cayman Islands. The BVI owns Wuxi Suntech (core assets) and subsidiaries (Luoyang, Shanghai, Yangzhou and others). If Wuxi Suntech and subsidiaries declares bankruptcy then equity holders at the listed suntech will be actually owning nothing. Listed Suntech is owned by around 60% Shi and family, 26% institutional investors and 14% of little guys. The restructuring plan is to downsize the assets of Suntech to just Wuxi Suntech and government take assets at the subsidiary in return of writting off local debt by the value of the fixed assets at the subsidiaries. The listed company will remain intact but with smaller production capacity; but this is not bad actually to equity holders because already current P/BV is 0.24. A less debt Suntech should lead us to P/BV of at least 0.70

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