Suntech, the world's biggest solar panel maker by capacity, has defaulted on a half a billion dollar bond.
Suntech default darkens regional solar plans
The biggest solar panel provider to the Arabian Gulf has defaulted on a US$541 million (Dh1.98 billion) bond as the Chinese solar industry bows to falling solar panel prices brought on by its rapid expansion.
Suntech provided panels for Abu Dhabi's Masdar and Saudi Arabia's King Abdullah Petroleum Studies and Research Center (Kapsarc). The Wuxi-based company received a notice of default from the trustee for the bond that matured on Friday.
Suntech - the world's top solar panel maker by capacity as of last year - has installed twice as many megawatts in the GCC as its next largest competitor and its future is intertwined with many of the region's maiden renewable energy projects.
"This is major for the GCC, because Suntech is the market leader," said Vahid Fotuhi, the president of the Emirates Solar Industry Association.
"This will have ramifications for major clients as big as Masdar and Saudi Aramco."
Suntech provided 5 megawatts worth of panels for Masdar City, 5MW in Bahrain, 3.5MW at the Saudi Aramco-affiliated Karpsarc and 1MW in Dubai.
Although large for the Gulf, the installations were within the margin of a rounding error in the company's annual 2,400MW production capacity.
Fuelled by generous support from the Chinese government, Suntech had doubled its production capacity in two years. The rapid volume increase from Suntech and other companies in China, which make up four of the top six solar panel makers, helped to drive down the price of panels by a quarter in the past year alone. China is expected to produce more solar panels than any other nation by this year.
But the expansion has come at a cost. Suntech accumulated $2.2bn of debt by last year and is investigating if it was the victim of fraud involving solar installation projects in Italy that may have never existed.
Analysts say that Suntech could be forced to file for bankruptcy after the default, or at minimum enter a restructuring process that allocates Suntech's good assets to state-backed manufacturers.
"The Chinese government is focused on value-driven investments, not throwing good money after bad money," said Mr Fotuhi. "This signals a wake-up call where the Chinese government finally realises that they cannot continue to subsidise all solar manufacturers. It also means that the Chinese manufacturers will realise Big Brother's not going to be there."
Warranties for the solar panels installed in the region typically last about 25 years. China should ensure those commitments are met to sustain investor confidence, said Mr Fotuhi.