Why the Suntech Bankruptcy Ruling Was Delayed

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A Chinese court has delayed a ruling on the restructuring plan proposed by solar PV maker Suntech Power Holdings Co. Ltd. (NYSE: STP) until the end of this year. Besides postponing the inevitable, the decision will set a precedent for how failing Chinese-based but U.S.-listed companies will be treated under Chinese bankruptcy law.

When Suntech defaulted on its loans and its Wuxi, China, operations filed for bankruptcy, there was a belief that, in that particularly Chinese way of doing business, the government would ride to the company’s rescue. That did not happen. Instead, ReneSola Ltd. (NYSE: SOL) received a new $51 million loan, a clear signal that Suntech’s $2.3 billion in debts would not be paid. Non-Chinese creditors have claimed $600 million from the company’s U.S.-based parent, and that amount, together with about $2.3 billion in loans from Chinese banks, is the issue in the bankruptcy hearing.

When China’s banks refused to lend Wuxi Suntech any more money, Wuxi’s local government stepped up, forming China’s first asset management company, with the unstated purpose of saving the thousands of jobs at Wuxi Suntech and its local suppliers. This asset management company could be the solar maker’s white knight, but it will have to make Suntech’s non-Chinese creditors satisfied, if not happy.

We have noted before the need for consolidation in the Chinese solar sector and even suggested possible mergers. The most likely acquirers are Trina Solar Ltd. (NYSE: TSL) and JA Solar Holdings Co. Ltd. (NASDAQ: JASO). In addition to picking up the pieces of Suntech, ReneSola and JinkoSolar Holding Co. Ltd. (NYSE: JKS) are the most likely targets. Once a bankruptcy decision is delivered on Suntech, a consolidation could begin in earnest.

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