A few years ago, Shi Zhengrong could claim to be one of China’s richest men. In late 2007, shares in Suntech Power Holdings, his solar cell manufacturer, were trading at more than $80, and it looked as though the research-scientist-turned-entrepreneur was at the forefront of a green revolution.
You only have to look at Suntech’s current share price to see that events didn’t quite deliver as planned. The company’s stock is trading this week at around $2.30. Although Shi says he is more interested in “solving problems for mankind” than accumulating profits (see Who’s Hu, WiC54), he must be a little perturbed by his deteriorating net worth.
Suntech’s share price is a reflection of its poor financial performance. And last week, the company reported another loss, this time in the third quarter of $116.4 million. Although better than the $259 million deficit in the previous quarter, investors remain distinctly unimpressed.
Part of the problem is the general malaise in the Chinese solar industry, where there is a massive discrepancy between supply and demand. Domestic companies now have to capacity to produce between 30GW and 40GW of photovoltaic panels annually, an industry analyst told Capital Week. But last year, total installed capacity worldwide was just 17.5GW. Optimistic estimates suggest that this could reach 20GW by the end of 2011. But that still means that many of the solar panels currently being produced are unlikely to find their way into a solar farm or associated project.
Instead, the build up in inventories is leading to “suicidal pricing”, Hari Chandra Polavarapu, an analyst at Auriga USA, told Bloomberg. Prices are down 59% since December last year, as companies try to offload their stock.
The problem is that local governments are reluctant to give up on their solar manufacturing bets, meaning that many producers are limping on without any real prospect of making money. This then reverberates across the whole industry. “China’s strongest manufacturers are sacrificing profitability because the weakest players still exist,” Polavarapu warns.
Others caution that Suntech’s problems cannot be blamed on the poor state of the industry alone, claiming that Shi has made a series of costly mistakes. As an example, the renewable energy expert speaking to Capital Week points to the purchase of a Japanese producer of solar modules at a time when market prices were extremely high. The deal now looks extremely expensive. And there was also a poorly-considered investment in thin-film batteries, which led to another Rmb1 billion in losses.
Another failing is that Suntech neglected to invest upstream in polysilicon production. Companies that put more resources into this business, like GCL Poly, are currently in better shape.
Shi now needs to focus on a potential financing crunch, with a large amount of short-term debt coming due over the next 12 months. Refinancing will be tricky. New bank loans will be tougher to source in the tighter credit environment and the weak stock price means that raising money in the capital markets looks like an unappealing option.
Shi’s solution is to look for new business away from his traditional focus in Europe. He told Caijing that the US and Asia-Pacific will now get more of his time, along with newer European markets for Suntech such as the UK, Greece (good luck with that) and Belgium.
The US also looks like a tough sell, with the Department of Commerce currently investigating whether Chinese solar firms are benefitting from unfair state subsidies.
That could prove yet another cloud on what seems to be a fairly bleak horizon for the solar boss.
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