Suntech's D-day nears, Yingli's mixed results
New developments in the battered solar energy space indicate the day of reckoning is fast approaching for embattled Suntech (NYSE: STP), even as the latest results from rival Yingli (NYSE: YGE) are showing early signs of a rebound for the battered sector. Industry watchers will recall that cash-strapped Suntech has nearly US$600 million worth of bonds that will mature on March 15, even though it lacks the money to repay the bondholders.
The company hired investment bank UBS in October to try and renegotiate the debt, though we haven't heard anything from the company since then. Just two months before that, Suntech founder Shi Zhengrong resigned as the company's CEO but retained his title as chairman.
Now Suntech has formally announced that Shi has also resigned his position as chairman, with US high-tech industry veteran Susan Wang set to take over that position. The announcement adds that Shi will retain his position on the company's board. But for anyone who likes to read between the lines, this move looks like the prelude to Shi's compete removal from the company that he founded, and I wouldn't be surprised to see him quietly leave the board altogether when the next elections are held.
Chinese media previously reported that Shi's removal from the company was one of the main conditions from Beijing as part of a broader government-led rescue package. With the US$575 million in Suntech bonds coming due in less than two weeks, it now looks like Shi has been unable to reach a deal by himself with the company's creditors. I suspect Shi couldn't offer those bondholders very much, perhaps 20 cents or less for each dollar, and that many of those creditors think they will get a better deal if they wait for a government-led rescue package.
Against that backdrop, Shi's exit from the chairman's position looks like one of the final steps before the company announces a state-led bail-out that will likely see Beijing and other government entities inject more than US$1 billion into the company in exchange for a major stake. Perhaps sensing an upcoming dilution of their shares, investors bid down Suntech's stock by 3 per cent in Monday trade after the announcement came out.
Meantime, we should also take a quick look at the latest earnings report from Yingli, which pre-announced much of the report's highlights last week. The main addition in the final report was Yingli's actual profit situation, which looked relatively encouraging. The company's net loss for the fourth quarter came in at US$200 million, a marked improvement from the year-ago net loss of about US$600 million. But the latest loss was also slightly larger than Yingli's third-quarter loss, as it took a US$19 million write-down for unsold inventory.
Shipments grew by an encouraging 40 per cent for the quarter, while revenue was up by a smaller 30 per cent, reflecting continued pressure on prices. In another piece of upbeat news, the company said it expects 2013 shipments to continue growing at about a 40 per cent rate, as the sector rebounds and the company gains market share at the expense of smaller, less efficient players. Yingli shares were unchanged after the results came out, most likely due to the mixed nature of its report and the fact that it pre-announced many of the figures last week.
Bottom line: Suntech is likely to announce a major new rescue plan from Beijing in the next two weeks, while Yingli's latest results point to accelerating consolidation in the solar panel sector.
To read more commentaries from Doug Young, visit youngchinabiz.com