Will Suntech’s Restructuring Be Enough?

Solar Panel ReservoirSuntech Power Holdings (NYSE:STP) is one of the world’s largest producers of solar panels, but that hasn’t stopped the company’s shares from crashing over 63 percent this year to date. The company is just one of many solar panel manufacturers that are suffering as a result of high costs, decreased demand, and over manufacturing.

Suntech has hired UBS AG (NYSE:UBS) to help cut its debt, but analysts are skeptical that the company has many healthy options. “I’d be interested to see the rabbit Suntech and UBS can pull out of their hat,” said Pavel Molchanov, an analyst at Raymond James & Associates, according to Bloomberg. The company has a market value of $169 million and $541 million — mark that, three times it’s value — of convertible notes due in March.

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The New York Times published an article on October 4 that detailed the massive over production issue associated with the remarkable manufacturing capacity of Chinese solar makers. The world seems to be drowning with solar panel production.

“It is not a Chinese industry problem, it is a global solar industry problem,” said Rory Macpherson, a Suntech spokesman in the article. “It is primarily the result of an imbalance between supply and demand, and the U.S. and E.U. trade investigations.”

Prices are down over 30 percent so far this year because of over production. The United States Commerce Department will announce on October 10 about final duties in its case regarding solar panel imports from China. The case was brought by SolarWorld in both the U.S. and in Europe. The U.S. Commerce Department already set combined preliminary duties of about 35 percent earlier this year on most Chinese solar panels.

“The markets would be surprised if the Commerce Department changes significantly from its preliminary ruling,” said Ramesh Misra, an analyst at Brigantine Advisers, according to Reuters.

On Ocotber 9, research firm Axiom placed sell ratings on and lowered earnings estimates for: Trinia Solar (NYSE:TSL), Yingli Green Energy (NYSE:YGE), Ja Solar (NASDAQ:JASO), and Suntech. According to Barron’s, Axiom analyst Gordon Johnson expects a continued drop in demand going into 2013.

Suntech’s CEO, David King, broke down his company’s restructuring strategy into 5 key elements:Suntech CEO David King

  1.  Invest in profitable and sustainable customer relationships.
  2. Bring production capacity down to appropriate levels.
  3. Cut production cost.
  4. Streaming operating structure.
  5. Improve financial position.

That last point no doubt indicates debt reduction through the help of UBS.

King concludes the restructuring press release by saying: “With this strategy, I am confident that we can return to positive operating cash flow in 2013 and set Suntech on the path to continued success in the solar industry.”

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