Suntech Power yesterday became the first company from the mainland to default on its bonds after failing to repay US$541 million of notes due on March 15.
The move pushed what was once the world's biggest solar panel maker into default on credit lines it had with the International Finance Corp and mainland lenders, Suntech said yesterday in a statement from its headquarters in Wuxi.
China Development Bank also has loans to Suntech.
The move opens the way for Suntech noteholders to sue the company in the United States, where its shares and bonds trade.
Last week, Suntech obtained an agreement of holders of 63 per cent of the notes to delay exercising their rights until May 15, allowing executives to press ahead with restructuring payments.
Some noteholders not involved in those talks are organising a rival group and have threatened to sue.
"For a US solar company, bankruptcy under such circumstances would indeed be inevitable," said Raymond James analyst Pavel Molchanov. "For Suntech, however, it is plausible that bankruptcy [and the associated stigma in the industry] could be avoided - but only if the Wuxi government [or other public authorities] provide enough near-term liquidity support."
Suntech was seeking "a way forward that will take into account the rights and interests of all of its constituents, including shareholders, noteholders, lenders, customers, suppliers and employees", chief executive David King said. "We are exploring strategic alternatives with lenders and potential investors, which could help to set us on a path towards longer-term success."
Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits.
LDK Solar, the second-biggest solar wafer maker, in December last year hired Citigroup to help renegotiate its liabilities and obtain "additional flexibility" from creditors.
Beijing has supported solar companies through credit lines from local government or state-backed agencies.
But the government might abolish some subsidy programmes for the largest projects to preserve incentives for smaller ones and avoid duplication, an industry official said.
The new policy would keep in place help for plants owned by the final user of the power, while trimming subsidies established to start utility-scale projects, said Meng Xiangan, a vice-chairman of the China Renewable Energy Society.
Even with solar subsidies, which began in 2009, photovoltaic manufacturers' profit margins have been crushed after the US$75 billion solar-components industry built too much factory capacity in the past two years.
Additional reporting by Reuters