Suntech's Home Provence Looks to Bailout Bankrupt Solar Giant

By Charlie Zhu and Umesh Desai

(Reuters) - The local government in Suntech Power Holdings Co Ltd's home town is seeking to bail out China's biggest solar panel maker to stave off its collapse, a person with knowledge of the matter told Reuters on Thursday.

One proposal under consideration is allowing Wuxi Guolian, the local government's investment arm, to take over Suntech's Wuxi business through a restructuring, and test a bankruptcy law introduced in 2007.

"Production has to continue," said the source in the city of Wuxi, where Suntech's headquarters are located. "The Wuxi government is still seeking to bail out Suntech in one form or another. It has no intention to let it collapse as, if that happens, it would damage its reputation."

With an estimated 10,000 employees in Wuxi, the local government would be keen to keep the company afloat.

Such a move would also test the notion - widespread in Chinese bond markets - that local governments will always bail out important companies without inflicting pain on domestic creditors.

However, what happens to the offshore holders of Suntech's bonds will have wide implications for investors who have flocked to Chinese dollar-denominated debt in search of yield.

A Wuxi government spokesman said he had no information on any plans for a Suntech bailout. But the spokesman added: "If there is any news regarding the restructuring, it will be released through Wuxi Guolian."

The Yangtze Evening News, a local official newspaper, said authorities would try their best "to maintain normal production of the company, social stability, safeguard the security of company assets and protect the interest of creditors."

Suntech defaulted on $541 million of its dollar-denominated bonds due on Friday, triggering cross-defaults on loans from International Finance Corp (IFC) and Chinese lenders.

At the end of March 2012, Suntech had total debt of $2.2 billion - including a $50 million convertible loan from the IFC, the private sector arm of the World Bank.

Domestically, nine banks, including Industrial and Commercial Bank of China , Agricultural Bank of China and Bank of China had outstanding loans of 7.1 billion yuan ($1.1 billion) to Suntech at the end of February, according to state news agency Xinhua.

Eight Chinese banks that have lent money to Suntech want the company's main unit, Wuxi Suntech Power Holdings Co Ltd, declared insolvent.

Suntech said on Thursday that the Wuxi Municipal Intermediate People's Court in Jiangsu Province had formally accepted the petition for the insolvency and restructuring of Wuxi Suntech.

The court appointed a committee consisting of local government representatives and accounting and legal professionals to administer the restructuring.

"The primary goal is to restructure Wuxi Suntech's debt obligations, while continuing production and operations," Suntech said.

Suntech shares, which resumed trading on the New York Stock Exchange after being halted on Wednesday, fell 49 percent to a lifetime low of 30 cents. At that price the company has a market value of $54 million, down from a peak of about $16 billion.

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