16 September 2019

Shunfeng’s tender for Wuxi Suntech deserves caution

Shunfeng Photovoltaic International Ltd. (01165.HK) closed up 22 percent on Wednesday after the solar module maker surfaced as a dark horse bidder for its bankrupt peer Wuxi Suntech Power, the key asset of Suntech Power Holdings Co. Ltd. (STP.US).

Shunfeng has been charging full steam ahead into solar power generation. A possible takeover of Wuxi Suntech is expected to substantially expand the company’s production capacity for solar cells and modules and bring about great synergy with its fledgling downstream operation.

Despite the obvious benefits, however, Shunfeng’s potential deal will be a highly leveraged buyout. Even after the stock gains on Wednesday, the company’s market value is just HK$6 billion (US$769 million). By contrast, Wuxi Suntech, once a global leader in the midstream PV sector, is ridden with about 10.7 billion yuan (US$1.75 billion) of debt.

Since most of Shunfeng’s working capital is already tied up with the spate of solar power station acquisitions this year, the company needs to undertake a hefty fundraising exercise to finance a successful bid, and this could lead to sharp share price swings.

The 21st Century Business Herald quoted an industry insider as saying that the Wuxi municipal government is likely to come forward to seek a haircut from creditor banks during the subsequent restructuring of Wuxi Suntech.

That sounds alluring but it is still a puzzle why bigger players such as Trina Solar (TSL.US) and Yingli Green Energy (YGE.US) reportedly withdrew their tenders halfway through if Wuxi Suntech is really such a bargain.

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