The challenges faced by the worlds PV manufacturers are big. Really big. According to recent analysis, the top 10 Chinese solar manufacturers have a combined debt running at US$16.3bn. To put that in a local perspective, it’s not far off the cost of servicing the entire cost of the country of Australia’s debt in 2012-2013 (A$12.5B).
The role of Suntech (who were formerly the worlds largest solar manufacturer) in this story is an important one given their former size and status. They are crucially important to local governments in China as an employer and were the first Chinese PV manufacturer to build  a product in scale that was synonymous with performance and quality; they built a powerful Chinese solar brand. Perhaps the first.
Suntech ran into trouble some time ago and most recently filed for bankruptcy protection in China in March, five days after its New York-listed parent company defaulted on a $541 million dollar convertible bond. The company currently has US$1.75 billion in debt.
Suntech’s recent challenges have continued with a suite of troubled assets seized by Italian courts recently.  The assets are owned by Global Solar Fund (GSF) who built solar plants in Europe but have become a thorn in the side of Suntech. The fund supporting the development of these plants by GSF was set up by Suntech founder and former CEO Shi Zhengrong but became such a disaster, it has potential to make a great TV mini-series for solar geeks. These solar farm’s were one of the key factors in Suntech’s fall from the top.
But business operates differently in China and the Government have been working tirelessly (it would seem) to avoid a collapse, actively seeking potential investors for the ailing company and recently committing to refund 50% of the value added tax to solar panel manufacturers from October 2013 to 31 December 2015.
Although its not the first time takeover discussions have emerged, this week there were several (five) new confirmed offers to step in and take over Suntech by some interesting entities.
GCL Poly confirmed they were looking at Suntech in 2012 and have again been mentioned as a potential buyer. With a 2011 wafer production capacity of 8GW and more than 17,000 employee’s they are undeniably an upstream PV industry powerhouse, and have been looking at going downstream for some time, but also have Billions of dollars of debt.Â
The Wuxi regional government (home to much of Suntech’s manufacturing operations) is also said to be actively participating in discussions, presumably with an eye on regional employment and recent reports put Trina Solar and Yingli Solar in the race for some of Suntech’s assets too.
The third company namedas a participant is Changzou based Shunfeng Photovoltaic International Ltd. As a lesser known PV brand (particularly here in Australia) the logic behind their desire to pick up such a powerful name would seem obvious.  Shunfeng list a mere 10MW of PV module sales in the first half of 2013  making them a pretty small fish in such a high stakes game. They also sold 134MW of polycrystalline cells and 39MW of monocrystalline cells in the period, so tolling for other PV brands and their upstream poly-silicon capacity is obviously key; only 14% of sales come from exports out of China. Indeed their web site mentions a supply relationship with Phono Solar Technology Co., Ltd (part of Sumec Group of companies) going back to 2010.
The relationship between Shunfeng and Suntech is not a surprise either; China’s solar sector players are often deeply intertwined. Back in May 2013, Shunfeng, bought into a 29MW Suntech solar power plant project in China, spending  US$15.2M for a 99% stake in the project and getting Suntech panels at a very low US$0.49c/W as part of the deal. According to statement by the company’s chairman projects are a key strategic foundation for the company’s growth plans. “ It is expected the total annual designed capacity of projects signed (but not yet completed) by the Group will exceed 1,079MW on or before 31 December 2013, and meanwhile, the Group is negotiating with other parties to acquire further solar power projects which, upon completion, are expected to have an annual designed capacity of 640MWâ€.Â
A detailed analysis of Shunfeng’s financial position is beyond the scope of this story, but what is clear is that they aren’t immune to the falling price of solar. Their revenues fell 37% compared to the previous half, with Gross profit falling by just over 17% as well. Most PV companies are still running at negative or very low margins. Like many their net losses are significant and widened in the period according to their half year report. Notwithstanding this, Shunfeng obviously has a plan, access to cash and debt, mentions favorable taxation and grants from the Chinese Government and and its move on Suntech has strengthened its Hong Kong listed shares.
The survival â€" or re-emergence  - of the Suntech brand is an important milestone for China’s PV industry and potentially a signal of both changing industry fortunes and, how mergers acquisitions and Government policy can build a global industry for China. Rescuing Suntech from the brink is perfectly in line with new Regulations for PV manufacturers that are due to take affect this month.
In September this year the Ministry for Industry and Information Technology releases details of new regulations that have been designed to radically shake up China’s PV industry.  These regulations and standards include:
- Strict control on expansion of existing production capacities
- Private equity requirement (20%) in any production expansion
- Minimum of EU1.2M p/a of 3% of turnover to be invested in Research and Development
- Minimum production capacity requirements
- Environmental benchmarks for finished products to be met during production
- Benchmarks for cell efficiency
- Compliance requirements for standards and mandatory certification schemes
The intention of such measures is obviously that only the most competitive and technologically advanced companies with sufficient access to capital, will survive; mandatory consolidation if you like. Although China has an astounding ability to move swiftly when it comes to policy and development, how soon these changes can be brought to bear on the real market economy remains to be seen; it could take some years before it takes affect if we look at other similar examples in their market.
Nonetheless, between the Government recent announcements, improvements in the bottom line of many companies and industry consolidation the Suntech restructure will be an interesting case to watch.
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Authored by:
Nigel Morris
Nigel Morris has been involved in the PV industry for almost 20 years and is the founder of SolarBusinessServices, one of Australia’s leading PV consultancies. He began his PV career as the manufacturing manager with one of Australia’s pioneers in renewable energy and during his 5 years there, was a system designer, manufacturer, installer, salesman and company director. In 1997 he moved ...
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