The Coming End of Suntech

Alternative Energy sources
Alternative Energy sources

Chinese solar panel maker Suntech Power Holdings Co. Ltd. (NYSE: STP) announced earlier this week that it will close its plant in Arizona on April 3, costing 43 employees their jobs. The cost to Suntech could be much higher - China's central government has indicated that it will not rescue the company from an impending bankruptcy that could come as soon as tomorrow, when Suntech could miss a scheduled $541 million payment to bondholders.

In 2011 Suntech became the world's largest producer of solar panels, but the honor associated with that did not last long. Overcapacity in the solar industry caused prices for modules to collapse and, although prices are fairly stable now, inventory write-downs and operating losses have battered the industry.

One potential Suntech rescuer is the municipal government of Wuxi, where the company's main operations are located. A holding company partly owned by the government could take over Suntech, according to a report in The New York Times.

The local government wants to save the jobs, but the central government is more interested in saving the industry. If that means Suntech has to go, well so be it. The Wuxi government is not likely to be able to swing a rescue without some help from a large bank, and if the central government does not want to save Suntech, then no such bank is likely to turn up.

Suntech could get a reprieve from bondholders on tomorrow's repayment, but that will only be a short-term solution. Nothing the company can do in the next two or three months can change the writing on the wall. Suntech will either be under new management or out of business.

Filed under: 24/7 Wall St. Wire, Alternative Energy, Bankruptcy, Green Biz, International Markets, Technology Companies Tagged: STP