- Suntech Power Holdings was forced to put its Chinese solar unit into bankruptcy in March 2013
- The slide into insolvency began in 2009 when customers linked to the company's founder were not paying their bills and yet the company booked the sales as revenue anyway
- Suntech suffered a €60m (US$720m) fraud resulting in a US$541m bond default
Missed Red Flags
- Suntech was booking revenue from sales to related companies with unbuilt projects in a fledgling industry - solar.
- Suntech guaranteed loans to those related companies.
- Suntech relied on a former sales agent to secure one guarantee with bonds it never saw or verified actually existed.
- Suntech had uncollected bills from related-company projects exceeding sales from those companies by a widening margin. Receivables were US$44.7m in Q1 2011, against US$33.6m in revenue booked from the companies. Sales dried up in later quarters and uncollected bills remained.
- Suntech’s vehicle for investing in new solar projects in the credit crisis was Luxembourg-registered Global Solar Fund, run by Javier Romero, who was once Suntech’s external sales agent in Spain. Romero persuaded Shi to commit 258 million euros to Global Solar Fund beginning in 2008, eventually giving Suntech an 86% equity stake. Shi himself committed €32m for almost 11% of the fund. Suntech wound up with 79% of the fund after giving part of its stake to Romero as an incentive payment. Global Solar Fund invested in 7 solar projects, mostly in southern Italy. They became the Suntech customers that had difficulty paying their bills. One of them, Solar Puglia II S.ar.L, required the guarantee of a €554.2m bank loan from China Development Bank. Suntech told the SEC that Global Solar Fund backstopped the guarantee with €560m of German government bonds. Romero assured Suntech that the bonds could be sold at any time to pay China Development Bank if the project defaulted on its debt, Suntech wrote to the regulator. Trouble was: The German bonds Romero promised as a backstop never existed, Suntech said in December after looking for them for four months.
The SEC’s first letter to Suntech was in November 2005, and its latest was April 2011. All of its letters were available to the public by mid-June 2011. There were about 38 equity analysts covering Suntech as of July 1, 2011, of whom 31 recommended either holding or buying the stock, data compiled by Bloomberg show.
"Suntech Unit Bankruptcy Had Roots in Deadbeat Customers", Bloomberg, April 4, 2013
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