The trustee administering $US541 million ($520 million) in bonds from Suntech Power sent the solar company a notice of default yesterday as the deadline to redeem the notes passed, a person familiar with the matter said.
The move allows bondholders to sue the Chinese company in US courts, according to the person, who asked not to be named because the information hasn’t become public. A default would be the first by a mainland Chinese company. Suntech said holders of 63 per cent of the bonds agreed to delay exercising their rights for two months until May 15.
“We believe it is in the best interests of all of our bondholders to come to a consensual restructuring and encourage bondholders that are not signatory to the agreement to join this process,” Suntech said in a statement released by its public relations adviser Weber Shandwick in Shanghai.
The default notice brings Suntech a step closer to court intervention in its efforts to renegotiate payments on the bonds, which were issued in 2007 and matured on March 15. Suntech is “likely” to enter bankruptcy, Aaron Chew, an analyst at Maxim Group LLP in New York, said in a March 14 note.
Bankruptcy may wipe out Suntech’s shareholders, including founder Shi Zhengrong, who was ousted as chairman this month and still controls about 30 per cent of the company. Shi, an Australian citizen who studied and worked at Sydney's UNSW, returned to China to found Suntech in 2001.
Suntech expanded rapidly, becoming the world's largest maker of solar panels at one point. Its New York-traded shares were also worth $US16 billion at the end of 2007, valuing Dr Shi's stake at more than $US3 billion - placing him fourth on Australia's rich list.
Suntech, based in Wuxi outside Shanghai, said on March 14 that it had no plans to make the final payment in time for the deadline. It hasn’t reported a profit since the first quarter of 2011 after a slump in the cost of solar cells gutted margins.
‘Organising’
Since July, Suntech has hired UBS AG to restructure its debt and downgraded its outlook for sales. While the company announced on March 11 that a majority of its bondholders are willing to wait for repayment, some that weren’t involved in the so-called forbearance agreement are threatening to sue.
“A group of bondholders is presently organising and is preparing to take action,” James Millar, a partner working on bankruptcy at the law firm WilmerHale in New York, said on March 15. He expects to represent several Suntech bondholders. “Each bondholder has a right to bring an action to collect all principal and interest that remains unpaid.”
Support from 25 per cent of the bondholders may be needed to take action against Suntech, according to a prospectus for the notes filed with the Securities and Exchange Commission in June 2008. Wilmington Trust is acting as trustee for the bonds and has the authority to declare whether the bonds are in default. Officials at the trust had no immediate comment.
Grace period
Millar said holders don’t need to meet the 25 per cent threshold before pursuing their rights to be repaid.
“Holders of a majority in aggregate principle amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available,” according to the prospectus. It also says “no holder will have any right to institute any proceeding” unless at least 25 per cent of the principle holders make a written request to the trustee of the bonds.
The document also says 60 days must elapse after the written notice before holders have rights to “institute any proceeding.”
The bondholders have an “absolute right” to be repaid the principal when the bonds mature, Adam Cohen, the founder of Covenant Review, a research firm in New York, said on March 13. “It doesn’t matter that a majority or 60 per cent wants to wait 60 days.”
Trondheim Capital Partners, a distressed-debt hedge fund, owns enough of the Suntech bonds “to make it worthwhile to file a petition to sue if they don’t pay us,” Colin Peterson, the Scottsdale, Arizona-based company’s managing director, said March 13. Suntech didn’t contact Trondheim before announcing the forbearance agreement, he said.
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