First Solar (FSLR), Suntech Power (STP): Consolidation in Chinese Solar Is Here

A Chinese solar company has defaulted on loans and has been brought into bankruptcy by Chinese banks. Many investors never thought this would happen. The free flow of money from state-run banks to the solar industry has been going on for years and a bailout from either a Chinese bank or a local government was always thought to be just days away.

Suntech Power Holdings Co., Ltd (NYSE:STP)

There was no such luck for Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) , who held the title of largest solar module manufacturer for two years. The company defaulted on U.S. convertible notes on Friday, which triggered a default on Chinese debt and the end was near.

The last day of Suntech as we know it
We know that Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) had over $2.2 billion in debt, most of it with Chinese banks who have long been forgiving of troubles in solar. So, when the company defaulted on U.S. debt and still refused to pay investors, the thought was that U.S. investors would force the company into involuntary bankruptcy. In fact, eight Chinese banks filed a petition for insolvency with the Chinese court.

This may seem like a small detail of Suntech’s bankruptcy but it’s very important to other companies in the industry. The central Chinese government has said it won’t bail out solar firms because consolidation and bankruptcies will be good for the industry. In December, the State Council said it would even ban local governments from propping up failing companies, as LDK Solar Co., Ltd (ADR) (NYSE:LDK)‘s local government did last year.

Until today, those words seemed hollow to companies and many industry observers. But the central government, local governments, and state-run banks didn’t interfere with the bankruptcy of Suntech. In fact, the banks were the ones that caused it.

Where Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) goes from here is currently unknown. The local Wuxi government now has seats on the board and it’s likely the government will bail out local manufacturing, which accounts for about three-quarters of the company’s manufacturing. Other assets may be sold to pay off other debts. We’ll know more about Suntech’s and the banks’ plans in the next few days.