Suntech hit by $541m bond default notice

Embattled Chinese PV group Suntech moved further towards the brink today after being served with a default notice from the trustee overseeing the $541m of bonds that it was due – but failed – to pay on Friday.

Suntech – which is clinging to the lifeline that almost two-thirds of the actual bondholders have given it a two-month breathing space – admitted to its investors today that legal action is a live prospect, and that its other debts had now been sucked into the equation.

The company said: “Suntech has entered into a forbearance agreement with holders of over 60% of the notes, one of the terms of which is that the forbearing note-holders will cooperate with Suntech in addressing certain legal proceedings that may be initiated against it.

“Suntech understands that those note-holders have also requested the trustee under the notes not to take any further action, as consensual restructuring discussions continue.”

It adds that “Suntech is thus far unaware of any legal proceedings initiated by any note-holders against the company” – although reports from the US suggest a group of bondholders there is preparing to do so.

In its statement, Suntech said the default “has also triggered cross-defaults under Suntech's other outstanding debt, including its loans from the International Finance Corporation and Chinese domestic lenders".

Suntech confirmed earlier this month that domestic creditor Bank of China was planning litigation against it.

The solar group – which was the world’s largest supplier of PV modules as recently as 2011 – also made reference to “discussions with certain of its suppliers and lenders relating to various other claims for non-payment or non-performance, which the company hopes to resolve in a timely manner”.

Suntech’s debts stood at $2.2bn in March 2012, the last quarter for which it reported results. The last time it turned a profit was the first-quarter of 2011.

In what some will view as an understatement, CEO David King said it is “currently a very difficult time for our company” but insisted the PV group will try to achieve a “consensual restructuring” of its debts.

King adds that the company is also exploring “strategic alternatives with lenders and potential investors, which could help to set us on a path towards longer term success”.

There are no further details of the “strategic alternatives” but many in the industry believe an intervention by the local government in Wuxi, China – where Suntech is based – represents its best hope of emerging intact.