IN DEPTH: Suntech's comeback
A year has passed since New York-listed Suntech Power Holdings became the first company in modern China to default on its bonds.
It was the climactic moment in the PV industry’s downturn, a brutal confirmation that not even the world’s leading module maker was immune to the bloodletting.
Today the landscape looks dramatically different. Asia has eclipsed Europe as the dominant global market, and while there are far fewer PV manufacturers left in the game, many of them have returned to profitability.
It is within this context that Eric Luo, Wuxi Suntech’s new chief executive, has unfurled his ambitions to reclaim a position of global leadership for his company.
Under restructuring, Wuxi Suntech has ostensibly shrunk its debts and severed ties with its former parent company Suntech Power, yet it retains ownership of the former Suntech empire’s key factories, its globally recognised brand and all its associated intellectual property.
When Suntech Power defaulted last year, a group of Chinese banks pushed the Wuxi Suntech subsidiary into insolvency. It was then handed over by the People’s Court in Wuxi, Jiangsu province, to an administrator for restructuring.
The gouging restructuring programme is likely to save thousands of jobs in China, but it will also see many holders of Wuxi Suntech’s 9.4bn yuan ($1.5bn) of unsecured debt paid just a fraction of what they are owed — and its impact has undoubtedly tarnished the Suntech brand.
Central to Wuxi Suntech’s comeback story is its acquisition by Jiangsu-based Shunfeng Photovoltaic International, a hugely ambitious Chinese solar developer that ended 2013 with 890MW of grid-connected capacity on its books — and plans to add a whopping 3GW in 2014.
Shunfeng’s 3bn-yuan ($490m) bid for Wuxi Suntech, which was accepted by the administrator in Wuxi last November, comes with everything — “our production lines, equipment, technology, the Suntech brand, and the [intellectual property]”, says Luo.
The 3bn yuan will be used to pay Wuxi Suntech’s debts that have not been written off under restructuring, including its outstanding tax bills in China.
Shunfeng plans to hold an extraordinary general meeting on 7 April, at which it must win the approval of its shareholders for the acquisition to go through.
Meanwhile, Suntech Power continues to dispute the validity of some aspects of the deal — although given China’s obvious interest in Wuxi Suntech’s survival, its options may be running out.
Should the deal go through as envisaged, Shunfeng will emerge as one of the world’s most formidable solar companies — and Wuxi Suntech’s role will be central. (Shunfeng is also the second-largest shareholder in LDK Solar, a huge Chinese polysilicon and wafer maker on the brink of bankruptcy.)
The 12 months since Wuxi Suntech was declared insolvent have represented a kind of “break” for the company, “allowing us to recharge so that now we can run again”, says Luo, who was formerly head of global supply chain for Suntech Power.
Wuxi Suntech — the world’s largest supplier of PV modules in 2010 and 2011, when its financial problems began to bite — used the past year to review its manufacturing processes, upgrade its equipment and streamline its management.
While the company may have fallen off the list of the top ten module suppliers globally in 2013, Luo is quick to emphasise that it did not disappear from the market altogether.
“I admit it was a very challenging year. But during the restructuring, we didn’t stop production — we produced nearly 1GW last year.” By comparison, global leader Yingli shipped about 3.2GW in 2013.
Luo notes that Wuxi Suntech never stopped providing support services to its existing customers, and saw its modules fed into landmark projects in key emerging markets, including a 30MW Martifer-backed project in Mexico and two arrays backed by Mainstream Renewable Power in South Africa totalling 100MW.
How exactly Wuxi Suntech will be integrated within Shunfeng has been a topic of intense speculation. Many have assumed it would exist essentially to feed Shunfeng’s voracious appetite for modules as it builds out its immense project pipeline.
“That’s probably one of the reasons why Shunfeng was willing to spend $500m acquiring [Wuxi Suntech], because, no matter what, they need panels,” Luo acknowledges.
But he insists that Wuxi Suntech will continue to sell as much of its output into high-margin overseas markets as possible — and only supply Shunfeng if there are no better offers on the table. “Our goal is to export as much as we can,” he says. “If we have enough overseas orders — even 100% — we’ll take it.”
Still, having what amounts to a buyer of last resort confers huge advantages upon Wuxi Suntech. Today, it has 2-2.5GW of competitive production capacity, according to Luo.
“Ideally, by the end of this year we’ll have expanded that to 3-3.5GW,” he says, adding that the pace at which the company balloons its output will depend on a variety of factors, “particularly the movement of the Chinese market”.
But producing solar cells and modules is only one part of Wuxi Suntech’s next chapter. Also critical to the company’s future will be its ability to become a “total solutions” provider based on the experiences it gains while working with Shunfeng’s projects business.
If all goes according to plan, Shunfeng will have nearly 4GW of installed PV capacity in China by the end of the year, and perhaps 400MW in overseas markets such as Japan and the UK, offering Wuxi Suntech enormous scope for optimising its kit for use in the field.
“That’s how we’re going to differentiate ourselves from our Chinese peers,” Luo says.
For all of its natural advantages in China, Europe will remain a key market for Wuxi Suntech.
Luo, who used to work for China’s Ministry of Commerce, reveals that he was a member of the “key working committee” that brokered the so-called price undertaking agreed late last year between the EU Trade Commission and the vast majority of China’s module suppliers. (The other committee members are unknown.)
Under the terms of that deal, Chinese suppliers are, for now, allowed to export 7GW of modules annually into the EU at a minimum price of €0.56 ($0.78) per watt. Within that 7GW, different manufacturers have been assigned quotas based on their 2011 market share in Europe — a detail that means that Wuxi Suntech’s annual quota is “over 500MW”, a top-three carve-out given its historic position in the European market.
“We have the allocation and we still have a strong brand in Europe,” Luo says. “We think that with the new company having re-emerged from restructuring, it’s a good time for us to come back.”
As part of a larger company, many of the variables that will determine the success of Wuxi Suntech will be out of the company’s hands. But Luo is adamant that in an industry as fast-evolving as PV, the positive attributes of the new Wuxi Suntech will quickly supersede the negative reputational baggage the name “Suntech” has accumulated in recent years.
“Suntech and the Suntech brand are deeply rooted in this industry,” Luo says. “We’ve shipped more than 30 million panels around the world — equivalent to 8GW.
“Within this industry, Suntech has a lot of relations and connections everywhere. Our customers, they want us to come back.”