A day after Suntech Power Holdings (STP) Co. Ltd. became the solar industry’s biggest corporate failure, workers continued to load and unload trucks at its main factory in China, adding to the global oversupply of panels.
Seven employees and contractors passing through the gates at the facility in Wuxi, about 75 miles west of Shanghai, when questioned by Bloomberg News said Suntech was operating after this main unit tipped into insolvency. The company, which is seeking local government aid and hired an executive from a state-backed company in Wuxi, said it plans to continue working while a Chinese court restructures $2 billion in debt.
For the industrial town of Wuxi, preserving some 10,000 jobs at Suntech is a priority of the local government and the state-backed enterprise, Wuxi Guolian Development Co. Ltd. (WUGUOZ) Maintaining the capacity and China’s position as the world’s leading solar supplier will exacerbate a supply glut that dragged down panel prices 69 percent in the past two years.
“It would be healthy for the market if its capacity would go offline, but that’s probably not going to happen,” said Henning Wicht, lead solar analyst at the energy consultant IHS Inc (IHS). in Munich. “They are a top-tier brand, and it seems the local government will step in.”
In an e-mailed response to questions, Suntech said it “will continue operations through the restructuring period.” Its spokesman Ryan Ulrich declined to comment to Bloomberg News at the factory gate. Officials at the Wuxi government and the development company weren’t available for comment.
Flush with credit from government-backed banks, Chinese solar companies wrested control of the solar industry from German and Japanese competitors. Suntech led the world in panel- making capacity in 2010 and 2011 and now ranks fifth worldwide, ceding its lead to Trina Solar Ltd (TSL). and Yingli Green Energy Holding (YGE) Co., according to data compiled by Bloomberg.
“Wuxi officials would crawl through fire to avoid looking like failures in a technology sector that is so highly prioritized by Beijing,” said Melanie Hart, senior policy analyst at the Center for American Progress in Washington.
Workers at the Wuxi plant said they hadn’t been told of any changes since March 20, when the company said the unit that operates it was subject to insolvency proceedings initiated by eight Chinese banks. That’s making customers wary, said Arno Harris, president of Sharp Corp (6753).’s U.S. solar-project development unit, Recurrent Energy.
“For any developer, it’s pretty impossible to put that technology in a project now because lenders are going to want to see a financially stable entity standing behind the warranty,” Harris said in an interview in San Francisco.
SAG Solarstrom (SAG), a German developer that bought Suntech panels in September, is now looking for other suppliers.
“We wouldn’t buy Suntech components in the current condition,” said Jutta Lorberg, a spokeswoman for the company, which is based in Freiburg.
Suntech had module manufacturing capacity of 2.4 gigawatts in 2011, more than quadruple the level of 2007, according to Bloomberg New Energy Finance. China has about 40 gigawatts of capacity, more than the roughly 30 gigawatts installed worldwide last year, the London-based researcher estimates.
The Bloomberg Industries Large Solar index tracking 17 companies rose 3.7 percent on March 20 after Suntech’s announcement, its biggest gain in a month.
“The Street assumes that because Suntech went bankrupt its capacity will go offline, and that’s not the case,” said Gordon Johnson, an analyst at Axiom Capital Management Inc. “Insolvency in this case is a takeover by a state-owned entity. This is very negative for the market.”
Bankruptcy for Suntech’s main unit may wipe out more than $1.28 billion that Wall Street investors funneled into Suntech through two stock offerings, including a $541 million bond issue since 2005. It also had $1.44 billion in credit lines including a $50 million note to the International Financial Corp. and credit lines with the China Development Bank Corp (SDBZ).
“The management and board are scrambling about behind the scenes, but their main concern isn’t the convertible bonds,” said Aaron Chew, an analyst at Maxim Group LLC in New York. “Their bigger problem is the money they owe to the Chinese banks.”