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Charles Kennedy

Charles Kennedy

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Suntech Solar Reels as Directors Quit Over Cash Flow

Giant Chinese solar manufacturer Suntech Power has seen three of its directors quit this month in frustration over what they say is the lack of clear strategy after the company went bankrupt earlier this year.

On 21 August, directors Susan Wang, Julian Worley and Zhizhong Qui tendered their resignations.

The former directors said in a shared statement that they were concerned about the company’s negotiations with bondholders, cash flow and the lack of a clear business plan. They also cited concern about the potential erosion of internal controls that was making it difficult for employees to function effectively, according to the South China Morning Post.

Related article: Germany Proves Sunshine is not Necessary for a Booming Solar Industry

Those directors who have remained at Suntech issued their own statement, saying that the concerns are "demonstrative of disharmony and issues of communication between the executive management and the resigning directors that decreased the efficiency of the board's decision-making process.”

The bottom line is that there has been a severe cash-flow drain and the directors are frustrated at the company’s rejection of their advice on how to move forward. This is compounded by the fact that the directors’ feel there is no clear plan in place for generating new capital.

Suntech shares plunged 7.3% Wednesday and have lost 34% this year in total.

After filing for bankruptcy earlier this year, Suntech rallied a bit in April on rumors that Warren Buffett might buy the company. According to Bloomberg, after falling 40% following the default, Suntech rose as much as 28% in early April after a Hong Kong news service said Buffet’s MidAmerican Energy Holdings Co. might buy the Chinese manufacturer.

Chinese lenders signed a bankruptcy petition for Suntech over the company’s debt in excess of $2.2 billion. Suntech continues to produce solar panels, however, further compounding the oversupply problem and forcing more drops in prices.

Related article: US Energy Department Claims the Cost of Solar Power will Fall 75% by 2020

Solar stocks are extremely volatile right now and unable to deal with the combination of oversupply and declining demand at a time when government subsidies are being slashed.

As of the end of this first quarter of last year, Suntech Power had total debt of $2.2 billion, including the convertible bond, loans from China Development Bank, and a $50 million convertible loan from the International Finance Corporation, according to Reuters.

Suntech reached a deal in June to push its bond repayment deadline to 30 Aug.

Right now, the company is operating at 30-40% manufacturing capacity and could ostensibly service its debt with its operating cash flows, according to some analysts. But it looks like it will have to get rid of some assets. In May, there was talk of selling one of its China-based solar projects for around $15 million—32% lower than its market value.

By. Charles Kennedy of Oilprice.com


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