Shunfeng move hints at progress for Suntech's China debt talks

Thu Oct 10, 2013 4:37am EDT
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By Charlie Zhu

HONG KONG (Reuters) - A closely watched restructuring of Suntech Power Holdings Co Ltd's Chinese debt is likely to move forward after Shunfeng Photovoltaic International Ltd was named the preferred bidder for Suntech's main unit.

Battered by a global glut in solar panels, Suntech Power, once one of the largest players in the industry, defaulted on a $541 million dollar convertible bond in March. It was one of the biggest defaults by a Chinese company and five days later its main unit, Wuxi Suntech, filed for bankruptcy protection in China.

The Shunfeng deal is not yet assured and its success will hang on whether it will be able to cut a favorable deal with Wuxi Suntech's creditors.

Those talks are in turn being monitored by offshore holders of Suntech Power's bonds, creditors whom analysts say are expected to recover a fraction of their capital at best. What happens to them will have wide implications for investors who have flocked to Chinese dollar-denominated debt in search of yield.

The Wuxi Suntech case will also be a rare test of a bankruptcy law introduced in 2007. Local government officials generally mediate between creditors behind closed doors and Beijing has used the law cautiously, fearing the failure of large companies and widespread layoffs could lead to social unrest.

Wuxi Suntech has $1.75 billion in debt. While the value of Shunfeng's bid is not known, a source close to the situation said Wuxi Suntech's creditors, including banks and suppliers, will need to suffer deep losses for Shunfeng to move ahead with its acquisition.

"As for how much of a hair cut they will take, it remains a big question mark," said the source, speaking on condition of anonymity as he was not authorized to openly discuss the matter.

"Another question is whether Shunfeng can put together a financing package for the potential transaction."   Continued...