2. Suntech's Bond Villain
Bond. German Bond. That's why traders are using their Series 7 Licenses to kill
The once high-flying Chinese solar panel provider -- one of the largest solar companies in the world -- plummeted into penny stock territory this week after the company said it might be the victim of a $679 million fraud.
Suntech revealed on Monday that an affiliate in a solar development fund possibly swindled it with a phony collateral pledge of hundreds of millions of euros of German bonds. The announcement caused Wall Street analysts to question Suntech's viability -- admittedly already a big question given the implosion of the Chinese solar sector -- and send its shares below a dollar, down from over $7 at this time last year.
"We now suspect that the German government bonds may not have existed and Suntech may have been a victim of fraud," said Suntech CEO Zhengrong Shi said on a conference call.
Wait, we thought the Chinese companies traded in the U.S. were the ones
Anyway, it certainly is a mystery Zhengrong. But then again, it's not a total surprise since the solar development company linked to the bond deal, Global Solar Fund, has always been something of a black box for Suntech - and hesitation point for analysts -- with many questions raised over the years about accounting between Suntech and GSF.
As to the validity of this whole German bond scam, well, that's too farfetched even for us to comment on. It would take James Bond himself to untangle this one and unfortunately he's too busy jumping out of helicopters with Queen Elizabeth.
Solving the mystery probably doesn't matter anyway. Maxim Group analyst Aaron Chew lowered his 12-month price target for Suntech to zero from 50 cents, doubting the company's capacity to cover a $541 million convertible bond that comes due in 2013 (the analyst seems to think that bond does, in fact, exist).
"While the fraud concerns the collateral backing the project debt and not the project itself, where there is smoke, there is usually fire," writes Chew, who adds that the Chinese government will most likely step in to save Suntech -- wiping out equity shareholders in the process -- since traders would reject any attempt to sell additional shares of the company.
Yes, it sure can be deadly when Mr. Market turns into Dr. No. Enough to scare the living daylights out of you. Those Suntech equity shares may soon be as imaginary as the German bonds that got it into the solar sector's latest mess.